The Indian central bank?s effort to push banks towards fair loan recovery practices in the retail sector, by threatening temporary bans, is well timed, given the growing reports on the harassment and injury suffered by defaulters. While it is easy to tar and feather defaulters as the ?bad guys? in the picture, the reason that lending rates remain so high, with everyone paying for the sins of a few, it is reasonable to assume that a large number of them are not ?cheats?. They are often victims of shifting economic circumstances and their own over-optimism. Grabbing them by the scruff of their necks only makes them victims twice over, even if informal reports from the field suggest that such roughing up tends to enhance their willingness and curiously even ability to pay up their dues. If the default lists are growing, the solution is not to either crack down on suspected ?sub-prime? lending, though credit cards seem to be issued to several user segments quite indiscriminately these days, nor descend to operating methods that break all norms of decency. So far, the system has operated in a near regulatory vacuum, with recovery agents being given a nudge and a wink by their commanders, and defaulters bereft of any recourse to a responsive mechanism to vent their complaints and settle charge disputes. The courts are much too busy to be effective, and the paperwork in loan agreements weighs so heavily in favour of the lender that it would deter even the most litigation savvy of borrowers.
An effective set up would be one that lets aggrieved defaulters register their complaints over the Internet, for example, with the bank?and then has a management panel examining these. Instituting such a mechanism would keep banks from feigning ignorance of the strongarm tactics adopted by their recover agents. It will also help if the interface with customers at the very start of the deal is standardised and made more friendly, with an emphasis on full disclosure of the terms. Most deals are initially secured through oral assurances of rules related to processing fees and other charges. The reams of documentation are a distraction, and the practice of asking for undated signed blank cheques is routine. The RBI has nothing to say about any of this, preferring to address only the occasional horror in newspapers.
