The death of a pregnant woman, allegedly run over by loan recovery agents as she protested the confiscation of her family’s tractor, has once again drawn attention to the strong-arm tactics used by recovery agents.
The Reserve Bank of India (RBI) has a code in place that states lenders must not resort to undue harassment and persistently bother borrowers at odd hours or use muscle power for recovery of loans. Despite this, some incidents have occurred, mostly with regard to digital loans. The central bank recently reiterated that lenders should take care not to intimidate borrowers while recovering dues.
Abizer Diwanji, EY India financial services leader, believes that some part of the problem also has to do with lenders. “The fintechs have ambitious growth targets and in their quest for revenues are indulging in methods like FLDG — first loss default guarantees. They then become aggressive about collections,” he pointed out.
While collection methods of NBFCs have traditionally been good and effective, the post-Covid stress has put pressure on companies and collection teams, Diwanji said. “Sometimes, we need to absorb losses and move on,” he said. Lenders, he believes, should sell down loans so that the pressure on the buyer of the loans, to recover, is that much less, he explained.
Banking expert Ashvin Parikh noted that such problems arise because the job is incentive-based. “Whenever lenders are hiring an external agency and fees are based on KPIs, it could become an issue. Parikh believes that the lenders must put in place well-defined documentation for agents and must strictly enforce these.
Raman Agarwal, director, FIDC, observed that while the behaviour of the agents was unpardonable, it was an one-off case. “While the actions of the agents cannot be justified, this is a stray incident. At the same time, we should be worried and this is a wake-up call to all lenders to be more watchful and take suitable measures to ensure there is no repeat,” Raman said.
Some bankers suggested a common pool of agents be set up under the umbrella of the Indian Banks Association which could closely be monitored by a specialised team. This way, they said, agents could be more closely supervised.
While the recent reminder by the RBI was primarily meant for digital lenders, the central bank has been concerned about the unsavoury methods resorted to by recovery agents. On August 12, the RBI observed that agents employed by regulated entities had been deviating from the prescribed instructions on outsourcing of financial services.