Extending the reach of banking services

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customer. Even though the interest rates on such loans are usually more than 30%, the recovery rate has been around 97-98%. Therefore, it shows that proper systems for credit disbursal can yield handsome returns.

Another concern is for those bankable people who do not have proper credentials to support their financial capabilities. Hence, it becomes the responsibility of borrowers to completely disclose their assets when borrowing. Another key concern in extending financial products responsibly in India is the lack of an institutional mechanism to keep track of the credit history of borrowers (individuals as well as corporates). It is observed that defaulting borrowers have taken loans from more than one lender and a large portion of borrower’s default on multiple loans at the same time. However, a beginning has been made with the establishment of credit bureaus. RBI has also been active in ensuring responsible lending by banks. It has devised and implemented Know Your Customer (KYC) norms. It has also penalised a few banks flouting KYC norms.

Rethinking the recovery process: Loan recovery is necessitated by loan defaults. Banks are not for charity, so both parties-lenders and borrowers-need to be aware and responsible before entering into an arrangement. Banks have been provided various direct channels, such as Lok Adalats, Debt Recovery Tribunals (DRTs), Securitization Act, and Asset Reconstruction Companies (ARCs) for lawful recovery of non-performing assets (NPAs). However, the time and cost involved during the process make these channels less attractive. Hence, most banks take the services of debt recovery agents (DRAs) to collect their dues on the loans.

In the last 4-5 years, banks’ practices to recover loans have become more visible than before. Social repercussions of irresponsible lending are beginning to reflect in the society. The most shocking incident has been of indebted customers who have committed suicide due to their inability to pay back their loans. Besides this, there have been a number of cases involving individuals who were lent irresponsibly and later, were not able to pay back. These cases are a direct result of a combination of a variety of factors, such as irresponsible lending, lack of credit information, lack of financial education on the part of borrowers, lack of appropriate legal or regulatory mechanism for loan recovery, etc.