RBI orders M&M Financial to stop loan recovery via third party

The shadow lending arm of the Mahindra Group can continue recovery or repossession activities through its own employees, the RBI said in a statement

The Reserve Bank of India on Thursday directed Mahindra and Mahindra Financial Services (MMFSL) to stop using third-party services for loan recovery until further orders, citing "material supervisory concerns".

"The Reserve Bank of India has today, in exercise of its powers under section 45L(1)(b) of the Reserve Bank of India Act, 1934, directed MMFSL, Mumbai, to immediately cease carrying out any recovery or repossession activity through outsourcing arrangements, till further orders," said the regulator in a statement.

However, the said NBFC may continue to carry out recovery or repossession activities, through its own employees. This action is based on certain material supervisory concerns observed in the said NBFC, with regard to the management of its outsourcing activities, added RBI.

RBI's action comes days after reports of a 27-year-old pregnant woman being crushed to death trying to stop a loan recovery agent, working on behalf of MMFSL, from seizing her father's tractor over loan dues in Jharkhand's Hazaribagh.

"We will investigate this incident from all aspects and will also undertake an examination of the practice of using third-party collection agencies that has been in existence," Mahindra Group CEO Anish Shah had said in a statement on Twitter last Friday.

MMFSL did not immediately respond to a Reuters request for comment on RBI's directive.