Loan recovery process should improve: RBI
By Vaibhav Aggarwal
Oct 8, 2007
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Recent spurt in excesses by loan recovery agents and their aftermaths have irked the Reserve Bank of India (RBI), the elite regulator of banking system in India.

RBI governor Mr. Y.V. Reddy in a pre-monetary policy review process held today expressed its concerns regarding the loan recovery process followed by the banks.

Among others Mr. O P Bhatt, CMD of State Bank of India, A K Khandelwal, CMD, Bank of Baroda, K V Kamath, Managing Director and CEO of ICICI Bank, Sanjay Nayar, CEO, Citibank India, and T Narayanasamy, CMD Bank of India, were present during the meeting and discussed the matter.

One of the bankers summarized the minutes of the meeting, "RBI has asked bankers and Indian Banks Association to study the working of recovery agents and come up with suggestions to improve the recovery processes and ensure monitoring of the practices."

Usually a pre-monetary review policy review meeting is more about listening to the bankers concerns, but this time RBI governor used the occasion to inform the bankers about its unhappiness over the entire issue regarding the loan recovery processes.

RBI is also working on guidelines which will ensure accountability in the loan recovery mechanism adopted by the banks. A code of conduct for recovery agents, their extensive background check including police verification, a single phone number for making phone recovery calls and proper details about loan recovery agency on the bank's website are some of the expected actions.

The ubiquitous instances of regular harassment, thrashing, high handedness by the loan recovery agents and the recent suicides were a cause of discontent amongst the population. It was the case of Mr. Prakash Sarvankar, a 38 year old resident of Mumbai, who recently committed suicide after being publicly humiliated by ICICI bank's loan recovery agents added fuel to the existing distress.

As per the Supreme Court judgment, banks and financial institutions can't send goondas to harass defaulters and their families. The widespread consensus among the populace and law makers is that the banks cannot escape their responsibility by claiming that the job of loan recovery was outsourced and the agents were not the employees of the bank.

India lacks a standardized credit history like in the US. Neither do banks have a way to acertain the credit worthiness of an individual based on his past loan payment history nor can the bank punish the individual for defaulting by updating and damaging the credit worthiness of the individual. There are efforts being done to put together something similar to a credit history in India.

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