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Tata Capital > Blog > Personal Use Loan > RBI Guidelines for Loan Recovery Agent and Process

Personal Use Loan

RBI Guidelines for Loan Recovery Agent and Process

RBI Guidelines for Loan Recovery Agent and Process

Loans are a great way to help meet sudden expenses, big-ticket purchases and the like for individuals and businesses alike. However, borrowers sometimes struggle to repay them on time. To recover outstanding loan amounts, financial institutions may engage recovery agents.

However, to prevent the harassment of borrowers, the Reserve Bank of India (RBI) has laid out guidelines governing the conduct of loan recovery agents. The RBI guidelines for the recovery of loans aim to balance the interests of lenders and borrowers, promoting fair practices in debt collection.

This article provides an overview of the RBI guidelines for loan recovery agents and the recovery process.

Who are personal loan recovery agents?

Loan recovery refers to the steps and procedures a lender takes to collect unpaid or past-due loan amounts from a borrower. When a borrower misses scheduled loan payments, the lender initiates the recovery process to recover the outstanding principal, interest, and any applicable late fees owed on the loan. To do so, they may hire loan recovery agents.

Loan recovery agents, also known as debt collectors, are professionals hired by lenders to help collect unpaid or past-due loan amounts from borrowers. Recovery agents are third parties engaged to supplement the lender's internal loan recovery efforts. They are an intermediary between the lender and the borrower, facilitating repayment of outstanding loan obligations.

The primary role of loan recovery agents is to reach out to borrowers through calls, emails, letters, and personal visits to remind them of missed payments and persuade them to settle the loan. Recovery agents must adhere to RBI guidelines for the recovery of loans.

They may negotiate repayment plans or loan restructuring on behalf of the lender. Additionally, they provide updates to the lender on the recovery status of past-due accounts. All the loan recovery practices must follow the established RBI guidelines for recovery agents.

The details mentioned in this blog may change from time to time and from vendor to vendor or government policies. 

What are loan recovery RBI guidelines?

Below are the RBI’s new guidelines for loan recovery:

1. Recovery agents must adhere to an RBI-approved code of conduct that promotes fair practices during the recovery of the loan. The RBI guidelines for the recovery of loans prohibit abusive language, intimidation, harassment, or physical harm to the borrower.

2. As per the RBI rules for recovery agents, they must carry an authorisation letter and the lender’s notice.

3. Agents must maintain borrower privacy and confidentiality when visiting homes or offices for recovery.

5. The RBI rules for personal loan recovery allow borrowers to submit complaints to lenders regarding misconduct by recovery agents. Lenders cannot assign the loan recovery to agents until borrower complaints are solved. However, frivolous complaints are not addressed by the lender.

6. Lenders must have a grievance redressal process to handle borrower complaints about the loan recovery. Grievances must be addressed appropriately.

Loan recovery process

When a borrower defaults, the lender can initiate the recovery process to obtain unpaid dues. The lender first issues a notice of default, providing details of missed payments and requesting immediate repayment. If the borrower fails to respond or make payments, the lender may assign recovery agents to facilitate collection.

As per RBI guidelines for the recovery of loans, the lender must inform the borrower before assigning the account to recovery agents.

Initially, agents focus on persuading borrowers to pay the overdue amounts through phone calls, emails, SMS reminders, and personal visits. If these efforts fail, legal action may be pursued, like securing a court order to attach the borrower's assets or wages.

However, RBI guidelines for the recovery of loans prohibit undue harassment, intimidation, or public humiliation of borrowers during this process.

Borrowers' rights and grievance redressal

RBI guidelines for the recovery of loans aim to uphold borrowers' right to fair treatment and protection from abusive practices. If borrowers believe recovery agents are violating guidelines, they can submit a complaint to the concerned lender.

As per RBI guidelines for the recovery of loans, lenders must promptly investigate and resolve complaints against recovery agents. If agents are found guilty of misconduct, the lender should take appropriate action and keep the borrower informed.

As discussed, the RBI guidelines for the recovery of loans also require lenders to have a grievance redressal mechanism to handle borrower complaints regarding recovery proceedings. Escalating grievances to the RBI Ombudsman or filing a case against violations of debt collection guidelines are other recourse available to borrowers.

Debt recovery tribunal

The Debt Recovery Tribunal (DRT) facilitates speedy adjudication of loan recovery cases by lenders. As per RBI guidelines for the recovery of loans, lenders can approach the DRT to recover dues above Rs 20 lakh from defaulting borrowers.

The DRT aims to settle claims expeditiously and minimise delays in recovering non-performing assets. If a borrower fails to repay despite the recovery proceedings, the DRT can order the seizure and sale of the defaulter's assets to recover outstanding loan amounts. However, lenders are expected to follow fair practices in utilising DRT's provisions for loan recovery.

Special situations and relief measures

RBI guidelines for the recovery of loans also outline special relief measures for borrowers facing genuine hardships in repayment.

As per RBI guidelines for the recovery of loans, lenders have the discretion to offer relief if the borrower's defaults are due to circumstances beyond their control. This approach is aimed at striking a balance between the lender's interest in recovering dues and the borrower's difficult financial situation.

Wrapping up

RBI guidelines for the recovery of loans promote fair practices by prohibiting abusive tactics while also securing lenders' interests. The guidelines protect borrowers' rights while ensuring the lawful recovery of unpaid dues.

Lenders and recovery agents are both required to act responsibly within the regulatory framework. Following RBI guidelines is essential for efficient, transparent, and ethical loan recovery procedures.

For borrowers, it is essential to find a lender with repayment tenures tailored to their unique financial goals. Tata Capital’s personal loans can help you with this. We offer flexible tenures and a 100% online application process, so you can get access to the funds you require with ease.

For more details, visit the Tata Capital website or download the Tata Capital App today!

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