In order to stop harsh recovery methods by lenders through their recovery agents, the Reserve Bank of India (RBI) on Friday said companies need to strictly ensure that they or their agents do not resort to intimidation or harassment against any person in their debt collection efforts. The RBI has also limited the hours for calling borrowers on phone for recovery of overdue loans between 8 am and 7 pm.
“It has been observed that the agents employed by REs have been deviating from the extant instructions governing the outsourcing of financial services,” the RBI said.
The central bank added that it has from time to time advised regulated entities (REs) that the ultimate responsibility for their outsourced activities vests with them and they are, therefore, responsible for the actions of their service providers, including recovery agents.
The RBI in its latest circular said, “In view of concerns arising from the activities of these agents, it is advised that the REs shall strictly ensure that they or their agents do not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude upon the privacy of the debtors’ family members, referees and friends, sending inappropriate messages either on mobile or through social media, making threatening and/ or anonymous calls, persistently calling the borrower and/ or calling the borrower before 8:00 am and after 7:00 pm for recovery of overdue loans, making false and misleading representations, etc.”
It added that this circular will apply to all commercial banks (including local area banks, regional rural banks, and small finance banks) excluding payments banks; all all-India financial institutions (viz. Exim Bank, NABARD, NHB, SIDBI, and NaBFID); all non-banking financial companies including housing finance companies; all primary (urban) co-operative banks, state co-operative banks and district central co-operative banks; and all asset reconstruction companies.
“The extant guidelines on permissible hours for calling borrowers on phone for recovery purpose are currently specified in respect of Housing Finance Companies and REs extending microfinance loans. Taking into account certain recent developments including growing incidences of unacceptable practices followed by RAs, the Reserve Bank of India has issued certain additional instructions to REs by extending the scope of the guidelines,” the RBI said in a statement on Friday.
Earlier, in June, RBI Governor Shaktikanta Das said an important area that is engaging the attention of the RBI is the harsh recovery methods used by certain lenders, without having adequate checks and controls over their recovery agents.
“We have received complaints of customers being contacted by recovery agents at odd hours, even past midnight. There are also complaints of recovery agents using foul language. Such kind of actions by recovery agents are unacceptable and pose reputational risk for the financial entities themselves,” Das had said.
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