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'R' for restraint
of coercion and violence are forcing banks to soften their approach
towards debt recovery. ANITA BHOIR
September, Kunal Pandey (name changed), a bank manager employed
with HDFC Bank, along with two recovery agents was arrested on charges
of threatening and attempting to extort money from a person who
had failed to repay a loan. The bank is willing to vouch for the
innocence of the employee, but the police are in no mood to relent.
They have told the young executive's family that it would take at
least five years for the charges against the employee to be dropped
by a court.
isnt an isolated example. Suddenly, banks are finding themselves
in a Catch 22 situation. On one hand, active consumerism has meant
a rising demand for loans. And the banks have tried to fulfil this
demand by doling out loans to earn high interest income.
the other hand, in some cases, when recovery agents have tried to
use coercion tactics, consumers have cried foul and approached the
courts. The result: with both courts and police on the side of the
customer, banks are finding it increasingly difficult to recover
money from chronic defaulters.
Reserve Bank of India (RBI) has also rapped them on the knuckles
and came out with guidelines that seek to regulate banks and their
recovery agents (see RBIs Seven Commandments).
wonder, banks are unhappy. Says the head of collection in a private
sector bank,Today, nobody is willing to join a bank's collection
department. What is so wrong in asking people to pay up? The recent
cases of abuse by collection agents are unfortunate. But while there
could have been some excesses, it is not right to generalise all
collection officials as goons.
the severe backlash following instances of use of abusive methods
for recovery has forced banks, especially private sector banks,
to take steps to prevent any recurrence of such episodes and make
systemic changes in the whole process.
the recovery agency pockets anywhere between 3.5 and 20 per cent
of the amount recovered as its commission, depending on whether
the borrower had defaulted only on a single instalment or the loan
had been written off. Also, banks set agencies stiff targets for
recovery which leads to unwanted aggression.
Pankaj S Joshi, an engineer and ex-banker who heads a Mumbai-based
recovery agency, Omega Alliance Recovery Solutions, My suggestion
to banks was that giving a target is fine. But also give us some
incentive on maintaining a clean collection trail. If there has
been no complaint against the agency or its employee, the bank could
give an incentive.
banks seem to be rethinking this strategy. Explains a collection
head of a large private sector bank, It is true that we have
a target-oriented approach. But now we are telling the agency that
if there is a problem you should get back to us, first.
Reserve Bank of India has issued guidelines on recovery agents
and the ways and means they can adopt to collect dues.
1. Banks should do due diligence before appointing recovery
2. They should give the borrowers the details of recovery
agents and the notified phone numbers
3. There should be a grievance redressal machinery in
4. Recovery agents cannot resort to intimidation
verbal or physical
5. Banks can only rely on legal remedies for recovery
6. Banks will have to ensure agents are trained and sensitised
7. IBA has to formulate a training course for loan sellers