Releasing the final guidelines on the modalities of recovery agents the Reserve Bank of India (RBI) has said in view of the rise in the number of disputes and litigations against banks for engaging recovery agents in the recent past, it is felt that the adverse publicity would result in serious reputational risk for the banking sector as a whole.
Complaints received by RBI regarding violation of the above guidelines and adoption of abusive practices followed by banks? recovery agents would be viewed seriously. RBI may consider imposing a ban on a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period.
In case of persistent breach of above guidelines, RBI may consider extending the period of ban or the area of ban. Similar supervisory action could be attracted when the High Courts or the Supreme Court pass strictures or impose penalties against any bank or its directors/ officers/ agents with regard to policy, practice and procedure related to the recovery process
To ensure due notice and appropriate authorisation, banks should inform the borrower the details of recovery agency firms / companies while forwarding default cases to the recovery agency.
Further, since in some of the cases, the borrower might not have received the details about the recovery agency due to refusal / non-availability / avoidance and to ensure identification, it would be appropriate if the agent also carries a copy of the notice and the authorization letter from the bank along with the identity card issued to him by the bank or the agency firm / company.
Further, where the recovery agency is changed by the bank during the recovery process, in addition to the bank notifying the borrower of the change, the new agent should carry the notice and the authorization letter along with his identity card.
The up to date details of the recovery agency firms / companies engaged by banks may also be posted on the bank?s website.
Where a grievance/ complaint has been lodged, banks should not forward cases to recovery agencies till they have finally disposed of any grievance / complaint lodged by the concerned borrower.
However, where the bank is convinced, with appropriate proof, that the borrower is continuously making frivolous / vexatious complaints, it may continue with the recovery proceedings through the recovery agents even if a grievance / complaint is pending with them. In cases where the subject matter of the borrower?s dues might be sub judice, banks should exercise utmost caution, as appropriate, in referring the matter to the recovery agencies, depending on the circumstances.
Each bank should have a mechanism whereby the borrowers’ grievances with regard to the recovery process can be addressed.
The details of the mechanism should also be furnished to the borrower while advising the details of the recovery agency as at item (iii) above.
Meanwhile, a working group constituted under the chairmanship of KC Chakrabarty, chairman and managing director, Punjab National Bank on Rehabilitation of Sick SMEs has suggested that medium enterprises should be taken out of the purview of BIFR and the banks given the responsibility of their rehabilitation, more so because only a fraction of the medium enterprises are covered under Sick Industries Companies (Special Provisions) Act, 1985 (SICA) and their rehabilitation done under the supervision of BIFR.
The committee has also suggested that raising the limit of Rs 20 lakh to Rs 50 lakh for Lok Adalats, measures to strengthen the DRT/legal machinery, dedicated Bench for SMEs to expedite the process of recovery, Asset Reconstruction Companies especially for Micro Small and Medium Enterprise (MSME) loans are some other suggestions of the Working Group.
The Reserve Bank of India released the working group’s report for wider dissemination and comments.
