Loan defaulters should be given last chance to repay: RBI

Thursday 27 March, 2008. Loan defaulters should be given last chance to repay: RBI The Reserve Bank proposes to make it mandatory for banks to give loan defaulters one last opportunity to repay before taking possession of the mortgaged property. In its second draft guidelines on recovery agents released on Tuesday, RBI said the re-possession procedures should follow the "letter and spirit" of the Indian Contract Act and must provide borrowers a final chance to settle loan dues before sale or auction of the mortgaged property by banks. The re-possession clause in the mortgage agreement should also include provisions for giving the possession of property back to the borrowers, it said. The apex bank has sought public comments on the second draft guidelines within 10 days. The draft proposes that banks should ensure that all calls made by recovery agents to customers and vice versa are recorded for future reference. The banks will also be required to put up an updated list of recovery agents on their websites, it said. The institutions, the draft said, should on their level try to address the grievances of the borrowers before transferring the case to recovery agents. "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," it stated. RBI has earlier asked Indian Banks' Association to formulate, in consultation with Indian Institute of Banking and Finance (IIBF), a certificate course for recovery agents, direct selling and marketing agents. According to the draft, the banks would have to ensure that all their agents undergo a minimum 100 hours of training within one year under the course being introduced by IIBF. Keeping in view that a large number of agents have to be trained, banks may provide the training to recovery agents by having a tie-up with IIBF. "However, every agent will have to pass the examination conducted by IIBF all over India," it said. The RBI sought to encourage banks to use forums like Lok Adalats for recovery of personal loans, credit card loans or housing loans with less than Rs 10 lakh. It also suggested use of credit counsellors to borrowers who deserve sympathetic consideration. RBI warned the banks that any violation of the guidelines and abusive practices by recovery agents would be viewed seriously. "Reserve Bank may consider imposing a ban on a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period," it said. If the practice persist, the apex bank could even extend the period or the area of ban, the draft guidelines stated.

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