Not able to pay back loan? What can be Done?

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.

Not able to pay back loan

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.





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Mani

I am a Blogger with a passion for Investment Education. I started blogging in 2007-08. Those where the early years when I went on the family way.

Blogging didn’t happened to me as a coincidence. It was a very conscious decision. I started blogging as a process to build a new hobby and also learn a new skill of personal finance management.

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12 Comments on "Not able to pay back loan? What can be Done?"

  1. 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

  2. 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.

  3. 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.

  4. 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

  5. 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.

  6. 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

  7. 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.

  8. 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.

  9. 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.

  10. 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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