MUMBAI: The Reserve Bank has issued comprehensive draft guidelines to curb coercive and unethical practices by recovery agents of lenders.
“It has been decided to issue comprehensive instructions to all regulated entities on conduct related matters in recovery of loans and engagement of recovery agents, which inter alia cover aspects such as fair treatment to borrowers during recovery process, conduct of lender’s employees and recovery agents, due diligence, training, code of conduct for recovery agents, etc,” the Reserve Bank said Thursday.
The RBI sought public feedback by March 6 for the new norms, which will come into effect from July 1.
The governor had on February 6 announced that the central bank would come out with a comprehensive guidelines on this as well as measures to curb the mis-selling, the draft norms for which was issued yesterday, seeking to penalise banks for mi-selling and also financially compensating customers.
New guidelines exclude regional rural banks, housing finance companies, small finance banks, payments banks, and local area banks.
Amending the ‘responsible business conduct guidelines for banks,’ the central bank said each “bank shall put in place a policy on recovery of loans, engagement of recovery agents for recovery of loan dues and taking possession of security."
It said,“The policy shall, inter alia, cover aspects related to eligibility and due diligence criteria for engagement of recovery agents, specified activities, code of conduct, performance evaluation standards, inspection / audit, control mechanisms to ensure compliance with statutory / regulatory requirements by recovery agents and procedures to be followed / penal actions to be taken in case of non-compliant recovery agents. The policy shall also include aspects related to recovery of loan dues in case of demise of borrower(s) or guarantor(s).”
The draft also seeks lenders which employ the services of recovery agents “to put in place a due diligence process for their engagement, which shall conform to the instructions issued by the Reserve Bank. A bank shall also ensure that the recovery agencies engaged by it carry out verification of the antecedents of their representatives/employees at pre-engagement level and subsequently, on an ongoing basis at a pre-defined periodicity."
Going forward, lenders will have to ensure that recovery agents obtain the certificate from Indian Institute of Banking and Finance (IIBF)’s training programme or any other institute having a tie-up arrangement with IIBF.
On the mandatory code of conduct of the agents, the draft says each bank shall put in place a code of conduct for the recovery agents and its own employees engaged in recovery. Further, prior to assigning any recovery related activities on its behalf, the bank shall obtain an undertaking from its employees/recovery agents that they agree to abide by its code of conduct and other policies, especially related to recovery of loan dues and taking possession of security.
The new draft also demands that lenders prominently display an up-to-date list of recovery agents empanelled and engaged with it on all channels through which it engages with customers, viz., branches / offices or digital platforms such as website, mobile app etc.
“Such list shall include the name of the recovery agents and details of individual(s) engaged by it, the period of engagement, etc. In the event of termination of the agreement with a recovery agent, the bank shall publicize the same to ensure that the borrowers do not continue to deal with that agent or its representatives/employees,” it said.
While forwarding cases to any agent for recovery of default amount, the bank shall inform the details of the recovery agent to the borrower through a written notice, either through a letter to his/her current address or SMS on registered mobile number or email on registered email address, to ensure due intimation and proper authorization.
To ensure fair treatment to borrowers during the recovery process, a bank will have to put in place a mechanism for identification of the borrowers facing repayment related difficulties, engagement with such borrowers and providing them necessary guidance about the recourse available.
The lender will also have to ensure that the disclosure of borrower’s information to its employees/recovery agents is limited to the extent required to enable them to discharge their loan recovery related duties.
Again, where a grievance has been lodged by a borrower, the bank shall not forward the particular case to an employee/ recovery agent till it finally disposes off the grievance. But if the bank is convinced that the borrower is making frivolous/vexatious complaints to avoid recovery, it may continue with the recovery proceedings even if a grievance is pending with it.
Also, if the default is sub judice, the bank shall exercise utmost caution, as appropriate, in referring the matter to its employee / recovery agent.
Further, banks have to ensure that there is a recording of the content/text of the calls made by the employee/recovery agents to the borrower/guarantor and vice-versa.
Banks will not initiate any legal action as a first resort for collection/recovery of loan dues/possession of security. Taking possession of mortgaged/hypothecated assets, the bank shall ensure that the possession clause is legally valid, and that such possession clause is clearly brought to the notice of the borrower at the time of execution of the loan contract/agreement.
Recovery agents, while visiting the borrower, shall carry a copy of the recovery notice along with identity card issued by the bank apart from the authorization letter from the bank.
The banks also have to ensure their agents do not make threatening and/or anonymous calls; intimidate or harass the borrower/guarantor/relatives/friends/co-workers in either verbal or physical manner, including acts intended to humiliate them publicly or intruding upon their privacy.
Finally, banks will have to set up dedicated mechanism for redressal of recovery related grievances. The details of this mechanism shall be provided to the borrower by including the same under the loan agreement and while advising the details of the recovery agents.