Governance: RBI instructs banks about loan recovery procedure

By now, there are numerous cases where banks have indulged in force when trying to recover loans. In many cases, these measures have resulted in humiliation, injuries, hospitalization and sometimes even death of the person being hounded; banks typically claim that they are not responsible for the actions of these recovery agents. The RBI has been mostly quiet when all this has been going on; one would have expected the IBA (Indian Banking Association) to be quiet, but the RBI is the authority that has controlling authorities over all the banks in India, and one would have expected them to intervene. It is courts that have been taking the lead in acting against these recovery agents.
Now finally the RBI seems to have woken up. It says that it will issue a circular on November 15, that will impose a directive to banks to make sure that their recovery agents do not indulge in these kind of activities:

MUMBAI: Concerned over growing litigations against banks and high-handedness of recovery agents, Reserve Bank on Tuesday issued strong warning to banks to check such practices or be barred from engaging such services.

An urgent need has risen to review the “policy, practice procedure” involved in the engagement of recovery agents by banks in India, he said, adding that banks are urged to follow prescribed specific considerations while engaging them. The directive to banks follow a series of complaints received by the apex bank regarding abusive practices followed by the recovery agents. “This invites serious supervisory disapproval, which includes imposing temporary or permanent ban if such practices persisted,” he said.

Even this measure seems inadequate. Why the delay till November 15 ? And banks are not instructed to follow the law of the land, but to ensure that banks review their recovery procedures; this seems strange. It would have been simple to instruct banks to ensure that their procedures do not flout the law of the country; even the penalty seems to be limited to just preventing banks from employing recovery agents – nothing more stringent than that. No review of their licenses for a patently illegal act, no threat of de-recognition, it seems like almost a slap on the wrist is all that is threatened.

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