The IBA will not impose penal action against violators, but continue to use suasion. However, it is expected that banks and perhaps non-banking finance companies (against whom there have been similar complaints but who do not fall within the purview of the IBA) will adopt the code of conduct once they decide to hire agents, and exercise greater vigilance over the latter's activities, even while keeping in mind the need for recovery.

The move follows a volley of press reports and complaints that these external agents, who were usually hired by banks to recover credit card and retail loan receivables (as in the case of auto loans, consumer durable loans, etc)-- were committing excesses often disproportionate to thequantum or period of default. These agents were usually hired by foreign banks, for whom it was uneconomical to hire a large permanent workforce, unlike as in the case of public sector banks. Such complaints were therefore less in the case of public-sector bank agents, as many of them took help of tough recovery agents only in the case of more hardened defaulters, and preferred to deal with the relatively 'soft' cases through their own workforce, initially.

To crystallise matters, the IBA convened a meeting of the working group dealing with this issue, on Wednesday. It was attended by PS Shenoy, chairman of the working group and executive director of the Bank of Baroda and senior officials from State Bank of India, Canara Bank, Central Bank, Citibank, HSBC and Standard Chartered Bank. The working group is expected to submit draft proposals within a month, which will include, among other things, issues such as the background of a suitable recovery agent, codes of conduct to be followed at different stages ofdefault, the degree of the bank's involvement in recovery methods. It is quite possible that the US legal system, which has very well-formulated guidelines on this, will be referred to for relevant regulations.

One reason why recovery agents sometimes go overboard was that they are entitled to a percentage of the recovered sum, which goads them to use coercive tactics even where it was not necessary. Sometimes, a lending bank sells off a demand promissory note to an agent whose sole responsibility it then becomes to recover the dues, since it is now off the bank's books. Third, under the Indian Contract Act, an agent can legally be assigned certain rights by the principal, that is, the bank in this case, although the principal is liable for agents' actions. With consumer activism rather dormant in the country, there have been no cases of legal action against agents who overdid it, in terms of making telephone calls to first or second time defaulters at uneathly hours, intimidating family members, barginginto a cardholder's office without proper authorisation with an intention to menace, not to speak of seizing cars and goods in lieu of dues.