The loan agreements of the non-banking finance companies (NBFCs) will now come with certain clauses that will have details regarding the repossession of vehicles.

The banking regulator, RBI has asked NBFCs to include certain clauses for repossession of vehicles in all their loan agreements.

RBI issued a circular stating that agreements between the borrower and the NBFC should clearly mention for a notice period before the repossession of vehicles. Further the situations under which the notice period can be removed also need to be stated in the contract.

The fair practices code on loan recovery also induces RBI to mandate detail procedure for taking possession of the security in the loan agreements.

Moreover it states that contract shall give a final chance to the borrower to repay the debts before the security is confiscated and put to auction. There should be a process for giving repossession to the borrower. Also, there should be an explicit procedure regarding the sale of property.

The repossession of vehicle has always been a concern for the auto financier as RBI always asked clarifications from banks that used harsh methods to repossess the asset.

However banks and NBFCs reported a rise in the delinquency level after the RBI relieved the repossession norms. The higher number of defaults has also been one of reasons for lenders to go slow in their new auto loan disbursement.