When there is a non-repayment of loan EMIs beyond a stipulated timeline, lenders can take necessary actions as per the RBI guidelines for loan recovery. This helps in enforcing fair practices in loan recovery and protecting the interests of borrowers and lenders alike.
To know more about this concept, read on.
Loan Recovery Process
Now that you know the meaning of loan recovery, it is crucial to understand that banks employ various methods to reclaim unpaid loan amounts. The banks may use the following two strategies:
Scenario 1
In the case of unexpected emergencies, lenders may:
- Extend the repayment tenure, which decreases the EMI amount
- Provide a moratorium wherein the borrower doesn’t have to pay EMIs
- Offer a haircut, which means the lender reduces a certain sum from the total loan amount
Scenario 2
In the case of a low credit score, the lender may:
- Auction the asset pledged by the borrower to recover the outstanding amount if it’s a secured loan
- Send recovery agents to reclaim the unpaid amount if it’s an unsecured form of credit
RBI Guidelines for Loan Recovery
The Central Bank has laid down certain norms to regulate the secured and unsecured loan recovery process. These include:
- In case a borrower defaults on repayment, the bank or NBFC needs to provide them with a Notice of Default
- When it comes to loan recovery, lenders must adhere to the Fair Practices Code for transparency and fairness
- The lenders can’t use any form of harassment or intimidation to recover the unpaid loan amount
- While lenders can engage recovery agents, they must not resort to any practices that don’t comply with the Code of Conduct laid down by the RBI
- Lenders should have a structured debt settlement process, and borrowers must be informed about it
- If borrowers feel there is a violation of their rights during the loan recovery process, they can take necessary legal actions
When is a Loan Categorised as NPA (Non-performing Asset)?
A non-performing asset simply means a debt, the principal and interest of which has not been paid in the last 90 days. The government has devised the following loan recovery techniques for NPAs:
- Debarred the banks from providing additional facilities to wilful defaulters
- Increased the jurisdiction of Debt Recovery Tribunals (DBTs) to help them focus on high-value cases
- Fundamentally changed the borrower and lender relationship with the Insolvency and Bankruptcy Code (IBC)
- Infusion of capital in PSBs (Public Sector Banks) to raise the coverage ratio, allowing them to make decisions on constrained accounts without affecting their profitability
Before applying for any form of credit, check if a lender adheres to the RBI guidelines for loan recovery. An RBI-registered bank or NBFC generally follows these norms. Hence, you can get an Instant Personal Loan of up to ₹5 lakhs on Fibe, which is an RBI-registered financial institution with an ISO 27001 certification.
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FAQs on the Loan Recovery Process
What are the RBI guidelines for loan recovery agents?
The following are some of the norms notified by the Central Bank for the loan recovery agents:
- The lenders need to publish details of all debt recovery agents on their official website
- The loan recovery agents can’t resort to any intimidation in their efforts to claim the unpaid amount of the loan from borrowers
- These agents can’t call the borrowers beyond 8 AM to 7 PM
Can a loan recovery agent come to the home?
Yes, a debt recovery agent can visit a borrower’s home, provided that they follow these RBI guidelines for loan recovery:
- If a recovery agent wants to meet, the borrower must decide the place of meeting
- They can only contact the borrower between 7 AM and 7 PM and must respect their privacy
- They can’t come to a borrower’s home unannounced, and they must carry an authorisation letter for the meeting
How do I stop harassment from loan recovery agents?
If the debt recovery agents harass or trouble the borrowers, they can visit a local police station and file a complaint.
How do I take legal action against a recovery agent?
You can take the following legal actions if a recovery agency uses illegal or aggressive tactics to claim the unpaid amount:
- You can file a complaint at the local police station against the agent
- If you do not get relief, you can also approach a civil court and seek legal assistance
