RBI Guidelines and Rules for Loan Recovery
The Reserve Bank of India (RBI) has established clear guidelines and rules for loan recovery to ensure fair treatment of borrowers and ethical conduct by lenders.
-
Fair Practices Code: Banks and financial institutions must follow a Fair Practices Code, ensuring transparency, fairness, and ethical conduct throughout the loan recovery process. Borrowers must be informed about the recovery process and their rights at the time of loan origination.
-
Notice Before Recovery: Lenders are required to issue a written notice to the borrower before initiating any recovery action. This notice should clearly state the default and provide the borrower with an opportunity to rectify it.
-
Prohibition of Harassment: Recovery agents and lenders are strictly prohibited from using abusive, coercive, or threatening tactics. All interactions must be conducted in a respectful and non-intrusive manner.
-
Time Restrictions: Recovery calls and visits should be made only during reasonable hours, typically between 7 AM and 7 PM.
-
Confidentiality: Borrowers’ personal and financial information must be kept confidential throughout the recovery process.
-
Use of Recovery Agents: If recovery agents are engaged, they must be properly trained and adhere to RBI’s code of conduct. They are expected to behave professionally and ethically at all times.
-
Grievance Redressal: Banks must have a robust grievance redressal mechanism in place, allowing borrowers to report and resolve issues related to loan recovery.
-
Negotiation and Settlement: Lenders are encouraged to negotiate with borrowers, offering options such as restructuring, moratoriums, or settlements where appropriate. Settlements may allow borrowers to clear dues by paying a lump sum that is less than the total outstanding amount.
-
Legal Action: As a last resort, lenders may initiate legal proceedings for recovery, following due legal process.
-
Lok Adalats: For loans under ₹10 lakh, banks are encouraged to use Lok Adalats (people’s courts) as a forum for amicable settlement.
These guidelines are designed to protect borrowers’ rights, promote transparency, and ensure that recovery practices do not compromise the dignity or privacy of individuals. If borrowers face any issues or harassment during the recovery process, they have the right to approach the bank’s grievance redressal system or the banking ombudsman.
