What happens if personal loan is not paid in India?

What happens if personal loan is not paid in India? What can be done?

Will it result in dooms day striking our peaceful life? Will the defaulter go to jail straight away?

Else we will have hooliganism displayed at our front doors by Banks?

Perhaps defaulting loan payment is one of the biggest fear for a common man.

These days middle class is earning handsomely. But with increase in purchasing power of middle class, they are opting for bank loans more frequently.

Sometimes people resort to too much loan without analyzing their payback power.

In past few years, the numbers of people defaulting loan payment has risen gradually.

This brings us back to our question that, What happens if personal loan is not paid in India?

It is a fact that must first be accepted by the defaulter. Loan payment default is not an acceptable practice.

Loan defaulter are not liked by banks. So for sure defaulters shall not accept a very polite knock on the door by banks.

But there are rights of defaulter that one must know.

Banks cannot simple send recovery agent at their doors to shake them up and show disrespect.

In this article we will see what are the rights of loan defaulters.

#1. RBI is the Big Boss:

Some years back there were lot of news printed about recovery agents.

Today we visualize recovery agents more as a rowdy person than a bank associate.

In one of the publications of Reserve Bank of India (RBI) it was mentioned that ‘engagement of recovery agents is causing serious reputation risk for the banking sector as a whole’.

Taking a corrective action, RBI revised the guidelines for engaging recovery agent by banks.

There is a clear cut guidelines from RBI that, banks/recovery agents cannot use ‘uncivilised, unlawful and questionable behaviour’ in the process of loan recovery.

#1.1 Banks must hire recovery agents with care

RBI has asked banks to conduct due diligence on the agency before nominating a recovery agent.

Due diligence shall be conducted by banks. Due diligence shall not only look at the company as a whole but must also look at, who are involved in the recovery process.

The person hired as recovery agents shall pass through police verification.

The family background of person in consideration can also be checked by the agency before hiring.

So it means that if a rowdy (in name of recovery agent) brushes his shoulders with the defaulter, he/she can lodge a complaint in police station.

In this case the recovery agency must give clarification so as to why a rowdy was hired in first place.

This may also result in loss of contract by recovery agency obtained from the bank.

#1.2 Recovery agency cannot simple come knocking on doors of the defaulters

Before bank sends a recovery agent, they must issue a intimation.

In the intimation letter they must first authorise a recovery agency to act on their behalf.

Communication of authorization shall go to the loan defaulter directly from the bank.

So it means that any xyz cannot knocks on the door of the defaulter acting as recovery agent.

If somebody does the opposite, the load defaulter can refuse to entertain the agents.

It may also happen that the recovery agent self carries the authorization letter. But this can be done only when several attempts to deliver the letter has failed in the past.

Recovery agents shall approach the loan defaulter only after showing the authorization letter and identity card. In case the agents misbehave, the details of identity card can be used to lodge a police complaint.

For helping the cross-verification of the credentials of the recovery agent, concerned bank must publish the details of recovery agency on their website.

Not able to pay back loan

#1.3 Banks must hear the defaulters side of story without a bias

While issuing the details of recovery agent by the bank, they must also issue one more communication.

This communication should furnish details of ‘how and to whom’ the loan defaulter can contact in the bank, explaining his grievances.

This step looks simple, but it will work as a big help when a recovery agent knocks on defaulters door steps.

Then the loan defaulter can show a copy of discussion he/she already had with the bank.

If the defaulter has already explained his grievances directly to the bank then recovery agent has no further role to play.

#1.4 Responsibility of Bank towards Recovery Agents

Frankly speaking, it is banks job to undertake loan recovery process in case of default.

But RBI allowed banks to offload the recovery process to a third party.

But there are risks when a banking activity is offloaded to a third party.

In order to manage the risks, RBI asked banks to provide training to new recovery agents.

All recovery agent shall first get a certification and only then they can act as recovery agents.

The training session must explain the “code of conduct & protocol” that recovery agents should practice while dealing with the loan defaulters.

#1.5 After what steps by the Bank/Agents, asset possession can take place?

If one has defaulted in payment of EMI of his/her auto loan, the recovery agent cannot simply take possession of the vehicle.

Bank must issue a letter highlighting the notice period before taking the possession.

The letter must also clearly state that what loan defaulter must do in order to get waiver of the notice period.

Recovery agent cannot claim possession of “anything as per their wish”.

They can claim possession of only those items which has been identified as ‘security’ in the loan application form.

Bank shall also give in written a ‘final chance’ to the loan defaulter to clear his dues.

Repercussion of non clearance of dues must be highlighted to the loan defaulter in written.

Banks can only take “possession of the security” and auction it to recover the bad debt.

#1.6 Banks can show sympathy to defaulters?

It is possible for defaulter to get sympathetic consideration from Bank?

RBI has made it compulsory for all banks to have a credit counsellor.

The loan defaulter can approach the credit counsellor and explain his/her grievance to them. In case the counsellor is convinced, a recommendation can be sent by him to the bank.

He can propose the bank to consider sympathy for the defaulter.

Final Words…

One must appreciate the fact that, Banks/Government cannot be lenient towards the loan defaulters.

If this is done in one case, then it will be taken as precedence. People will start taking loan default as a excusable crime.

It is also possible that, people with wrong intentions shall start to FAKE their loan payment capability.

Hence it is important to maintain a tight rules for the loan defaulters.

But what happens when the case is genuine, and the concerned person is really facing a problem?

Sorry, but even in this case not much can be done. The last step is, banks taking possession of the Security.

But before taking this final step banks can do the following:

  1. They can lower the EMI load for initial years.
  2. They can defer the payment of EMI’s.
  3. In rarest of rare case, they may also consider waving off a part of the loan.
  4. They may also provide in-depth counselling to the defaulter.

It is essential for a borrower to understand that availing loan is a very serious step in ones life.

One must think 100 times before before getting into debt.

All pros and cons must be studies by the borrow before taking even a penny of loan.

Taking loan is a risk. If loan is small, risk is less. If loan is big, risk is more.

The point is, a borrower must deliberate the consequences of loan defaulting before getting into the loan.

This small brainstorming will clear a lot of cloud about its consequences, and its related fears.

Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyze all securities before investing in one.

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20 Comments on "What happens if personal loan is not paid in India?"

  1. Hello, I have taken a personal loan of 3 Lang 20 thousand rupees and I have paid only few emi after taking the loan I lost my job and was facing medical issues and now after two years again I joined job and want to pay my loan however bank is not allowing me to pay in emis. They want complete amount in a go only. But I am not able to pay complete amount.

  2. Dear Sir, I took a 5,00,000 Rs. loan from State Bank of India in September 2016 and buy two macines to start a small business. but due to demonetisation i could not pay the installments on time and till october 2017 there were 5 installments due on me. i paid one installment in October 2017 and requested bank to decrease my installment amount and expand the time period. but in December 2017 they transfer my case to Government for recovery. i have already sold my one machine (colletoral). now, i sold another machine and paid 55000 to government. i don’t own any property. but i want to repay the loan in easy installments. what should i do.

  3. Hi sir this is rakesh i had made loan 3 lakh rupees and 1.5 year already paid and after that i was injured with had injurey in 2012 not admit in hospital atleast 6 month job loss because of my had injury after one year i had recover my brain injury then what i see there than can charge me full amount 3 lakh ans they never give me any compantation about my accident and now in 2018 with all intrest amount is 5 lakh i not now i m not working any where and i please suggest how can i pay my loan amount how i m setteled this

  4. Respected sir
    My self sungl kumar gauge I have taken 3.5 lack personal loan and all emi paid on currect time but before 7 month later left my job after this I will paid all emi but sir till time I am not enable paid to emi.
    Sir please suggest me what I do because I am facing other loan emi.

  5. I had a vehcle loan 340000 .i have paid 240000 after my business got a case with building owner so it was closed . Balance 1 lack is left to pay, thy telling to pay 220000 include interests Now i don’t have any income.I am struggling 4 year.Please suggest me, i ready to pay my vehcle but it has no much value what will the futuer How can i safe from this issue.

  6. shriram sharma | December 27, 2017 at 7:40 pm | Reply

    sir my known has taken a loan to buy property worth 4 crores to run a school , but after demonetisation we are not able to pay off our loan EMI. The property cost is not coming at par as previously it was value of the said amount. what we can do pls suggest.
    Thanks and regards

  7. Hemanth Kumar M N | December 20, 2017 at 2:35 pm | Reply

    Hello Sir,

    I have taken Homeloan of 50Lacs from Nationalized Bank, & payed 50 EMIs without any delay after that job last & uanle to carry out payment of regular EMI & now almost pending for 8 EMIs, from my day 1 till date, I have paid Bank almost 28,50,000/- in EMIs for 50 Lacs in that showing 48 lacs as my principle amount. My present financial condition is worst than before & not seeing any door seems all door care closed….still searching for the job….Now I became bad defaulter..is anyway I can come out with positive helps from the Bank or RBI for we like poor peoples….


  9. Pannalal motiram dabhade | June 2, 2017 at 3:25 am | Reply

    Sir I have taken about 50 lacks loan for house purchasing
    Fm private bank
    Dhfl and Aspire
    But I just have 2emi
    Is pending
    But company coat ligle action
    On me
    Sir I m government servant

  10. My brother gaurav took personal loan of rs. 60000 from home credit. he paid only 3 emis and after that he had a big loss of his job. now father also got expired. they are continuously threatening to my brother and he is unable to handle it. kindly suggest the way.

  11. marulasiddappa | April 25, 2017 at 6:01 pm | Reply

    Dear sir.
    I lost my job,I took loan(7.5 lack) from HDFC bank, Balance 4 lack is left to pay,Now i don’t have any income.I am struggling to get the job from lost one & half year.Please suggest me,How can i safe guard from this issue.

    • The best alternative is to approach you back and explain your state of affairs. Generally they consider such proactive actions and may grant some breathing time.

  12. Triveni

    I took loan 196000 i paid till 150000 again charged mortgage interest am not saving anything i dono wt to do now please suggest me any ways are there for this charges Mortgage loan

  13. Kothapalli ganesh | January 23, 2017 at 2:54 pm | Reply

    Sir, I took loan from axis bank. amount 300000.i paid till last month.
    I lost my job due to personal reasons. Please give me one month to clear the pending EMI’s.

  14. Dear sir,

    I have suffered loss ,I had paid off my settlement amount towards my sbi credit card n closed it,
    # I had made a decision with hdfc bank, n made settlement lum sum AMT , n stopped paying for settlement remaining AMT, I even have personal loan from Axis Bank, I have made 9 instalments by now,
    In my personal life suffered huge loss, loosing property, job, everything made be as defaulter….

    Now , m worried will bank take off my Job?? N if I salary to my account! Will they track it n deduct my salary by, which m surviving??

    Is there any way, so bank can excuse me n leave me alone, instead harassing, n chasing me to payoff loan??
    If Yes!! Where shd I go? Wat can be done. Please release me from this burden…..I have 2 lakhs loan, n settlement AMT due from hdfc for 20,000 ,I can’t pay ….bz m suffering from proverty for my loss of my money n property….

    Please sir, help me

  15. I Took an Education Loan from SBI Bank Amount is 200000 And i paid all amount to my college but some helth issue i not attend exam and i fail. and i am not able to pay loan please suggest me.

  16. Dear sir,
    I have taken a lone for Rs 29 lac for purchase of machine cost rs 41 lacs for a period of 3 years. As my asserts did not gave me much productivity i am unable to pay reguler installments ,i have 6 pending installments and furtther 6 installments upto feb 2017 .As a guaranter my wife has singned the agreement paper of finance company.
    Company has filled a legal case which is running on court of ecs dishonour.
    They are threatning me that they will charge non ballable warrant and will arrest me and gurantor my wife too.
    Now i have got a work for that asset and i have also commited to pay the entire amount to the finance company within some extended period but they are asking to pay 4 installment as on date or surrender the machine which i cant as i have sold the gold and invested my working capital for the down payment of the asset .
    I have commited that i have got a new contract and will defenetely pay all dues inspite they are threating me and my wife too to put on jail.I am 33 year old with my two children and my wife. We are in under very huge pressure.

    Please provide guideline.

  17. shuddhodhan wankhade | June 11, 2016 at 5:44 pm | Reply

    Dear sir,

    Please help me to out from horrism from bank, i am 25 year guy working as mechanical engineer ,actually i had taken the personal loan of Rs. 300000 before one year on my job, but the suddenly after 6 month company remove me under the man power reduction, and then after i was searching job but because of suddenly stoping salary i could not pay 5 EMI ,i got the notice from bank counselor with bank pressure ,because of this i am under the large pressure and afraid more with lots of stress on head .
    Is really bank take big step to jail and all that they talk to me
    but now i got the jobs but i cant suddenly submit the all over-dues so i want to time for 2-3 months for clear but lots of pressure from the bank i am deeply afraid. please tell me is bank take such step to civilian which hamper the normal life of man. i will clear it within 3-4 months .please remove my fear i am under the lots of stressed from bank. and sometimes thing very badly about the life.

  18. Sir my dad made loan of RS.25,00,000 and my mom signed in it(legal papers).My dad is hotel worker and mom is govt highschool teacher… My dad spent all money in drinking alcohol and spending in others problems.. So what happens if they both fail to pay money… Does it means that I have to recover the loan payments of there loan?I dint sign up in any legal papers of their loan…sir plz help me…

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