If we are not able to pay back loan, 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.
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 one is not able to pay back loan.
It is a fact that must first be accepted by the defaulter that loan payment default is not a 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 shall 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.
RBI acting as 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 ‘uncivilized, unlawful and questionable behaviour’ in the process of loan recovery.
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 shall 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 shall 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 why a rowdy was hired in first place. This may also result in loss of contract by recovery agency from bank.
Recovery agency cannot simple come knocking at door of defaulter
Before bank sends a recovery agent they must issue a intimation. In the intimation letter they must first authorize 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 identify 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 shall publish the details of recovery agency on their website.
Banks must hear the defaulters side of story
While issuing the details of recovery agent by the bank, they shall also issue one more communication. This communication shall furnish details of ‘how and to whom’ the loan defaulter can contact in 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.
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 shall explain the ‘code of conduct’ & protocol that recovery agents shall practice while dealing with loan defaulter.
After what steps Banks/Agents can claim possession of asset/s?
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. 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 security and auction it to recover the bad debt.
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 counselor. The loan defaulter can approach the credit counselor and explain his/her grievance to them. In case the counselor is convinced, a recommendation can be sent by him to the bank. He can propose the bank to consider sympathy for the defaulter.