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M. Sitarama Murty

A few incidents involving harassment and even reportedly death of one or two bank borrowers caused uproar and attracted the attention of the judiciary and the Reserve Bank of India. By any stretch of imagination the methods adopted by the recovery agents in these cases can’t be considered justified or legal. The RBI felt the need to protect the interests of borrowers and chose to tread a contentious path by coming out with draft guidelines on the mode of recovery. Putting the process of recovery in a formal framework is a delicate task, which may impinge on the autonomy of banks or inhibit their efforts. It should not become an incentive for wilful defaulters.

Repayment and recovery are not the two sides of the same coin. Repayment is voluntary and on time. Where repayment does not come forth recovery exercise begins. And recovery always implies an element of coercion and pressure. The million dollar question is where to draw a line between the acceptable and avoidable!

Informing the borrowers of the details of the recovery agents (RAs) is certainly desirable to avoid unauthorised and unscrupulous persons entering the arena or adopting any unsavoury methods for recovery. It would help eliminate possible impersonation and frauds too. It can be made mandatory.

Recovery targets and incentives can’t be altogether avoided. The success rate in any recovery effort is in a way linked to subtle pressure and offer of a carrot, particularly in case of outside agents. The terms and conditions of the contract are best left to the banks. What however needs to be emphasised is adherence to the rule of law and avoidance of intimidation and questionable methods, rather than prescribe a straight jacket document.

Expressions such as intimidation, harassment, odd hours and muscle power are difficult to define and are subject to various interpretations and litigation. The local socio-economic and cultural milieu widely varies from place to place and for various segments of customers. What would constitute ‘persistently bothering’ a borrower? A recalcitrant borrower normally avoids personal or phone contacts. Genuine attempts by the banks or the RAs to contact or remind a person about overdues or default, either orally or through notices, can be dubbed ‘botheration’. As the guidelines are to be uniformly made applicable to the bank personnel too, there is a danger of them refraining from their normal recovery functions, lest their actions might come under scrutiny.

Is it possible to define what odd hours are? Can timings, say between 6 a.m. and 10 p.m. be prescribed as acceptable? Once again, the timings also are linked to the lifestyles and geographical locations. No uniformity is possible. Even within the same place persons from different walks of life adopt multiple lifestyles. To opine whether a particular act or behaviour amounts to a threat is not easy either. It could be highly subjective and depends on the emotional and psychological factors. Merely bringing to the knowledge of a borrower the possible steps that the bank might have to initiate to re-possess the assets or conduct a sale or auction could also be deemed a threat. The language, the tone and tenor of speech could make a difference. Physical violence and use of abusive language can reasonably be well defined and should be forbidden completely.

A casual conversation with borrowers in the presence of a third person or in their work place or business premises could be branded as humiliation by disclosure of private information. Attempts to interact with them at home, where invariably family members would be present, can be termed intrusion into their privacy. Many borrowers are reluctant to visit the banks and the options available to the bank executives or the RAs can get limited, frustrating their efforts and provoking them to resort to litigation or enforcement of security. In the recovery process, personal contact, counselling, and persuasion do play a major role. It is possible that these contacts sometimes lead to subtle pressures and veiled threats (of coercive methods), crossing the ‘Lakshman rekha’ proposed to be drawn through the guidelines.

The idea of insisting on engaging only trained persons as RAs appears to be a sound and good move. Many times the thin line between the legal and irregular is ignored by the RAs either because they lack basic civic qualities or told by their employers that only strong arm methods would work. Irrespective of the employer organisation’s status or credentials, it would be desirable that they undergo a mandatory training about the nuances of law and basic precautions they have to take in dealing with borrowers. Senior executives from banks, the RBI and a few reputed lawyers can be drafted as faculty.

The borrowers are entitled to know the detailed terms of the loan, repossession, notice period, the procedures for seizure of assets and their sale or auction. It is already being done and if a few exceptions are there the banks should fall in line.

Preparing a public document such as guidelines for recoveries can create more problems than cure any. It should be seriously examined if a reiteration to banks that only legal and approved methods should be used for recoveries and any deviations would attract severe reprimand and penalties from the RBI would serve the purpose.

On their part, some banks haven’t reacted positively in trying to buy insurance against possible increased default, post guidelines, by raising the interest rates. Instead it is necessary to revisit their strategies and processes for acquiring assets. Total dependence on paper or central processing or engaging agents without liability means no role for branches that could add useful personal inputs about the quality of assets. Increasing the rates of interest may turn out to be the remedy proving worse than the disease.

(The author is a former Managing Director of State Bank of Mysore and is accessible at: murthy@mandavilli.com)

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