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The RBI guidelines for recovery agents - explained!
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What is the role of recovery agents? How do they operate? What are the rules and regulations they have to abide by? What is the role of the RBI in the recovery process? As a layperson, you probably haven’t a clue, but could well find yourself in their net one day! Read on to keep yourself updated.
Banks and other financial institutions hire recovery agents in order to recover debts from clients on their behalf. These recovery agents are responsible for collecting outstanding payments from the bank’s customers. Recovery agents have been accused of using inappropriate measures to collect money from people. Their recovery practices have recently come under the scrutiny of the law and justice keepers in the country.
Arm-twisting tactics
The common notion is that recovery agents use threat or ‘goonda-gardi’ practices and harass clients to collect debts due. The RBI has recently issued draft guidelines that recovery agents and banks will have to abide by when collecting debts from their customers. The idea is to streamline the practices used by recovery agents and keep a tab on them.
The gist of the guidelines
  • Banks should approach Lok Adalats for small cases of outstanding consumer debts less than around $25,000 in the form of personal loans, credit card debts or other loans. This guideline is based on the suggestion made by the Supreme Court.

  • Banks are responsible for the actions of the recovery agents. Hence banks have to ensure that the recovery agents they hire follow RBI guidelines and the rules of the Banking Codes and Standards Board of India throughout the recovery process.

  • In cases where customers default on payments, banks are obligated to inform them about the details of recovery agents hired by the bank. A repossession clause should be included in the contract. Also customers should be given prior notice of the repossession in case of non-payment.

  • The Indian Banks’ Association (IBA) and the Indian Institute of Banking & Finance (IIBF) should conduct training courses for recovery agents in order to educate them about the preferred recovery practices. A minimum of a 100 hours of training is desirable.

  • Customers should not be harassed or abused during the recovery process. For example, customers may be contacted only on telephone numbers provided by them and not on any other number. Calls or personal visits may be made during decent hours only. No abusive language may be used with the non-paying customer.
RBI will take strict action against banks not complying with these guidelines.

Do you know of cases of inappropriate collection practices adopted by recovery agents? How effective will the new guidelines be in controlling such practices?
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