Recovering reputations

MONETARY POLICY MID-TERM REVIEW 2007-08/ SUPERVISION AND REGULATION

The banking regulator may impose a ban on continued use of abusive methods if a court of law imposes penalties against the bank.

The Reserve Bank of India (RBI) could bar a bank from using the service of recovery agents if a court of law imposes penalties or passes an order against the bank or any of its directors or officers for abusive practices by its recovery agents.

Complaints received by the central bank on abusive practices adopted by its recovery agents will invite serious supervisory disapproval.

The RBI said, "In view of the rise in the number of litigations against banks for engaging recovery agents in the recent past, it is felt that the adverse publicity could result in serious reputational risk for the banking sector as a whole.

"An urgent need has, therefore, arisen to review the policy, practice, procedure involved in the engagement of recovery agents by banks in India."

The central bank could impose a temporary or even a permanent ban, on continued use of abusive methods, on a bank from employing the service of recovery agents, where a high court or supreme court has already ruled against the bank or its director or officer for abusive practices adopted by its recovery agents.

"On recovery agents, there has been huge reaction. I have made a personal appeal to bankers to do their best to ensure recovery agents do not indulge in such matters. Otherwise there could be a ban on recovery agents in certain areas where their conduct is less than desirable," said YV Reddy, governor, RBI.

Chanda Kochhar, joint managing director and chief financial officer, ICICI Bank, said, "Clearly it is the responsibility of the bank to ensure that the collection process is robust. We have our processes in place."