RBI: Digital lenders must convey details of recovery agents to defaulting borrowers

The RBI also said that penal charges such as cheque bounce/mandate failure charges, which are necessarily levied on a per-instance basis, may not be annualised.

Reserve Bank of India (RBI) on February 14 said digital lenders must convey the details of the recovery agent if a loan turns delinquent.

"If the loan turns delinquent and the recovery agent has been assigned to the borrower, the particulars of such recovery agent assigned must be communicated to the borrower through email/SMS before the recovery agent contacts the borrower for recovery," the RBI said in an FAQ on digital lending guidelines.

Also, at the time of loan sanction, the borrower may be conveyed the name of empanelled agents authorised to contact the borrower in case of loan default, the RBI said.

This is important in the backdrop of rising cases of recovery agents harassing borrowers through arm-twisting methods to get the money back, causing distress to the borrowers.

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In the guidelines, the central bank said in the case of delinquent loans, registered entities (RE) can deploy a physical interface to recover loans in cash, where absolutely necessary.

In order to afford operational flexibility to REs, such transactions are exempted from the requirement of direct repayment of loans in the RE’s bank account.

However, any recovery by cash should be duly reflected in the borrower’s account and REs shall ensure that any fees, charges, etc., payable to LSPs are paid directly by them (REs) and are not charged by LSP to the borrower directly or indirectly from the recovery proceeds, RBI said.

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Regarding the recovery agents, the central bank on August 12, 2022, had issued certain additional instructions to REs by extending the scope of the guidelines and limiting the hours for calling borrowers on phone for recovery of overdue loans.

“These instructions will be applicable to all Commercial Banks (including Regional Rural Banks), Co-operative Banks, Non-Banking Financial Companies (NBFCs), Asset Reconstruction Companies (ARCs) and All India Financial Institutions," the RBI said in a release on August 12, 2022.

Further, the RBI said in digital lending guidelines that penal charges such as cheque bounce/mandate failure charges, which are necessarily levied on a per-instance basis may not be annualised.

However, these charges must be disclosed separately in the KFS under ‘Details about Contingent Charges’, it added.

Along with this, the central bank also laid down certain other guidelines on the digital lending front such as the lending service provider needs to appoint a grievance officer, the exemption can be extended to co-lending arrangements between REs for non-PSL loans, insurance charges shall be included in the computation of APR only, among others.