The Reserve Bank of India (RBI) on Wednesday allowed Mahindra and Mahindra Financial Services (M&M Financial) to resume loan recovery and repossession activities through third parties.
The RBI has informed M&M Financial of its decision to lift restrictions following submissions made by the company, its commitment to strengthen recovery practices and outsourcing arrangements, tighten the process of on-boarding third party agents and strengthen accountability framework, the non-banking financial company said in an exchange filing.
In September, the central bank prevented the lender from using third-party services for recovering loans after media reports that a 27-year-old pregnant woman was crushed to death, trying to stop a loan recovery agent working on behalf of M&M Financial. The woman had reportedly been trying to stop the recovery agent from seizing her father’s tractor over loan dues.
M&M Financial’s shares had plunged over 20% following the order in September, before recouping those losses by December.
Following the company’s September quarter results, the management told analysts that the impact of the RBI
These statements, coupled with the company’s strong July-September numbers, calmed nerves as far as investors are concerned. Nevertheless, the incident and RBI’s subsequent action brought loan recovery agents under the scanner once again. In fact, the central bank had in August issued a circular addressing various issues related to recovery agents engaged by banks and non-bank lenders and the methods and practices being followed by these agents while undertaking recovery.
Among other things, the August circular limited the hours for calling borrowers on phone for recovery of overdue loans. The circular came in the backdrop of growing incidences of unacceptable practices followed by loan recovery agents.
The RBI had first issued guidelines on managing risks and code of conduct in outsourcing of financial services by banks in 2005.