RBI defers loan recovery norms till Jan as lenders seek more time

Theindiapostdaily.com – The Reserve Bank of India (RBI) has agreed to the industry's request to defer the implementation of its guidelines on the conduct of regulated entities in loan recovery and engagement of recovery agents by three months to 1 January 2027. The regulator also clarified that the directions would not apply to the lenders' own employees.“Considering the technical and operational changes necessitated by the directions, the effective date has been extended to 1 January 2027 to facilitate smooth implementation,” the central bank said on Thursday. The norms were earlier slated to kick in from 1 October.In February, RBI had proposed norms barring recovery agents from going too far in their pursuit of defaulting borrowers.

The regulator had said that neither the bank’s employee, nor the recovery agent should engage in any harsh methods to recover dues. Use of abusive language, sending inappropriate messages either on mobile or through social media, excessively calling or calling outside the prescribed hours would be considered harsh.In its latest statement, RBI said the terms ‘recovery agency’ and ‘recovery agent’ indicate that lenders’ own employees are not covered under these definitions.“A recovery agent does not include a collection agent who is engaged for collection of regular periodic instalments from borrowers. If multiple activities such as collection, recovery or possession are carried out through the same agent, the instructions, as applicable to the activity being carried out, shall be required to be followed by the agent,” RBI said.Loan recovery has emerged as a contentious issue in recent years, bringing back memories from the late 2000s, when private banks used coercive tactics for the process.In September 2022, RBI had asked Mahindra & Mahindra Financial Services (Mahindra Finance) to stop recoveries through external agencies after the death of an individual allegedly in the recovery process.

The restrictions were lifted four months later.In its latest statement, RBI directed banks to have a dedicated mechanism for redressal of recovery-related grievances. It said the details of this mechanism shall be provided to the borrower by including it under the loan agreement and while advising the details of the recovery agency.“Further, all recovery related communications issued by the bank must contain the name, email address, telephone number and address of the grievance redressal officer concerned of the bank whom the borrower/guarantor can contact,” it said.The regulator also said a bank or the recovery agencies engaged by it will have to carry out verification of the antecedents of the recovery agents at pre-engagement level and subsequently, on an ongoing basis at a pre-defined periodicity as specified in the bank’s policy.According to RBI, an employee or recovery agent should avoid inappropriate occasions such as bereavement in the family, medical emergencies, or such other calamitous occasion, or marriage functions, etc., for making calls or visits to recover loan dues from a borrower or guarantor. In case of microfinance loans, it said, collection or recovery has to be made at a designated place decided mutually by the borrower and the bank.