Tough RBI guidelines for banks on recovery agents

Taking serious note of complaints received against recovery agents for abusive practices and violation of guidelines, the Reserve Bank of India (RBI) has threatened erring banks with a ban on engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period.

Setting out tough guidelines for banks on recovery agents on Friday, RBI said in case of persistent breach, the central bank might consider extending the period of or area under 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,? RBI stated in its draft guidelines published on its website for public opinion.

The norms would apply to agencies engaged by the bank and their agents or employees, as well as bank employees.

Some banks set very stiff recovery targets or offer high incentives to recovery agents. These have, in turn, induced the recovery agents to use intimidation for the recovery of dues. ?Banks are, therefore, advised to ensure that the contracts with the recovery agents do not induce adoption of uncivilised, unlawful and questionable behaviour or recovery process,? RBI said.

Banks, as principals, are responsible for the actions of their agents. Hence, they should ensure that agents strictly adhere to the guidelines, including the ?Code of Bank?s Commitment to Customers?, RBI said.

The recent spate of arm-twisting tactics adopted by a few bank recovery agents on defaulting borrowers has led to public uproar that questioned the banks? legal stand in adopting such means for recovery, said RBI. This led to a rise in litigation against banks, thus necessitating the guidelines.

The likely implications for reputation risk not only for the bank concerned but also for the banking sector as a whole has necessitated a review of the policy, practice and procedure involved in engaging recovery agents by banks in the country, explained RBI.