The Reserve Bank of India (RBI) on September 22 said M&M Financial Services cannot undertake loan recovery or repossession activity through outsourcing arrangements, until further orders.
However, the non-banking finance company may continue to carry out recovery or repossession activities, through its own employees, said the central bank in a statement.
This action is based on certain material supervisory concerns observed in the M&M Financial, with regard to the management of its outsourcing activities, the regulator added.
On September 16, news agency PTI reported that a 27-year-old pregnant woman was allegedly crushed to death under the wheels of a tractor which was forcibly being driven away by a recovery agent of a finance company in Jharkhand's Hazaribagh. The incident reportedly occurred on September 15.
Subsequent media reports and clarification by the Mahindra Group confirmed that the vehicle was indeed financed by Mahindra Finance. The loan was passed under the name of the victim’s differently-abled father, as per media reports.
Moneycontrol reported on September 19 that the central bank may look at imposing punitive fines at M&M Finance for violation of norms on recruitment of loan recovery agents.
While Mahindra Finance is undertaking a review of appointment of third-party agents for recovery purposes, NBFCs are finding themselves in a tough spot after the RBI’s November 12 circular on standardisation of assets.The circular, apart from requiring NBFCs to stamp non-performing assets (NPAs) daily, also stated that an NPA account cannot be upgraded to a standard asset category, till all dues, including the compounded rate of interest on the loans, are paid upfront.