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RBI issues final norms for banks’ recovery agents

MUMBAI: The Reserve Bank of India on Thursday stipulated that it would impose a ban on banks from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period for violating the guidelines and adoption of abusive practices followed by the banks’ recovery agents.

In the case of persistent breach of guidelines, the RBI may consider extending the period of ban or the area of ban. Similar, supervisory action could be attracted when the high courts/Supreme Court pass strictures or impose penalties against any bank or its directors, officers and agents with regard to policy, practice and procedure related to the recovery process,

“It is expected that banks would, in the normal course ensure that their employees also adhere to the guideline during the loan recovery process,” the RBI stated in its final guidelines for banks which are engaging recovery agents.

Banks are asked to ensure that there is a tape recording of the content and text of the calls made by recovery agents to the customers, and vice-versa. “Banks may take reasonable precaution such as intimating the customer that the conversation is being recorded,” the RBI stated, adding that, up-to-date details of the recovery agency firms engaged by banks may also be posted on the banks’ websites.

Banks are advised to ensure that the contracts with the recovery agents do not induce adoption of uncivilised, unlawful and questionable behaviour or recovery process, the RBI said.

Banks are advised that they should ensure that, among others, the recovery agents are properly trained to handle with care and sensitivity, their responsibilities, in particular aspects like hours of calling and privacy of customer information.

On taking possession of property mortgaged or hypothecated to banks, the RBI stated that where banks have incorporated a re-possession clause in the contract with the borrower and rely on such re-possession clause for enforcing their rights, they should ensure that the re-possession clause is legally valid, complies with the provisions of the Indian Contract Act in letter and spirit, and ensure that such repossession clause is clearly brought to the notice of the borrower at the time of execution of the contract.

The RBI urged banks that the terms and conditions of the contract should be strictly in terms of the recovery policy and should contain provisions regarding (a) notice period before taking possession (b) circumstances under which the notice period can be waived (c) the procedure for taking possession of the security (d) a provision regarding final chance to be given to the borrower for repayment of loan before the sale or auction of the property (e) the procedure for giving repossession to the borrower and (f) the procedure for sale or auction of the property.

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