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.
#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.
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:
- They can lower the EMI load for initial years.
- They can defer the payment of EMI’s.
- In rarest of rare case, they may also consider waving off a part of the loan.
- 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.