Bullying tactics for recovering bank loans must stop
Back in the 1990s, when India stepped into the light of economic liberalisation and private banks began the gold rush, ‘collection agencies’ found a strong formal footing in the banking space of the country. Stories of forcible grabbing of cars and two-wheelers by these third-party actors soon followed the initial boom of vehicle loans. The strong-arm tactics went on to be the norm. The harrowing tales of small borrowers hounded for failing to repay personal loans have become all too familiar in our popular culture.
Three decades later, the economic landscape and banking ecosystem stand transformed. Digital services have taken financial inclusion to a new plane. Online loan apps and fintech have revolutionised the sector, while NBFCs have a sweeping coverage of the vast rural landscape. So much so that 60% of the loans disbursed by NBFCs in 2021 were through digital lending apps, according to an independent report. Yet, the monster lives on. On Sunday, an elderly couple in Odisha’s Puri district ended their lives allegedly under the intense pressure of loan repayment from a microfinance company and private banks. Late last year, in upscale Gurugram, a middle-aged man met the same fate over a similar incident. These are just small pointers to a bigger malaise.
Recovery from a Covid-stressed economy, inflation and rising interest rates have exacerbated the sufferings of thousands of defaulting small businesses and individual households. Much of it has to be seen from two angles—financial literacy and the situation in rural India where NBFCs hold sway. As per National Centre for Financial Education’s 2019 survey, overall financial literacy in the country stands at a meagre 27%. In states like Odisha, Sikkim and Chhattisgarh, the average is around 10%. Barely 29% of men are financially literate, while for women it is 21%. Low penetration of financial literacy restricts their access to consumer rights information and grievance redressal.
The RBI has issued guidelines to make banks and NBFCs accountable for safeguarding customers’ interests and warned of stringent action. But regulatory mechanisms and surveillance seem inadequate as loan consumption demands balloon across India. Financial institutions may have embraced the best technologies, but the recovery mechanism they have adopted remains crude and disorganised. That needs immediate reforms.