After putting banks on notice in its monetary policy statement last month, the Reserve Bank of India (RBI) on Friday put out guidelines on the use of recovery agents.
MUMBAI: After putting banks on notice in its monetary policy statement last month, the Reserve Bank of India (RBI) on Friday put out guidelines on the use of recovery agents.
It has proposed that banks provide borrowers information (including contact details) about recovery agents in advance. It also advised banks against setting stiff recovery targets or offering agents high incentives, which may induce them to use intimidatory methods of recovery.
The draft guidelines also propose that the Indian Banks’ Association, together with the Indian Institute of Banking and Finance (IIBF), conduct a certificate course for direct sales associates, marketing associates and recovery agents.
Analysts and bankers fear that recovery of loans will take longer and banks could face a rise in defaults.
“From an industry point, uniform guidelines for agents will help. We are already seeing a slight rise in NPAs. There are issues with the quality of loans and the restrictions on recovery agents are a matter of concern,” said Robin Roy, principal consultant, PricewaterhouseCoopers.
The worry is greater for private banks like ICICI and foreign ones like Citibank, as these have a large chunk of retail loans.
In the banking sector, retail loans (home loans, personal loans and auto loans) constituted 25.8% of the total loans as on March 2007.
“There are 1-1.5% cases of defaults in home loans, but they are 2-3% for auto loans. Banks usually finance 80% of the vehicle loan without a surety and, with the value of the vehicle depreciating, customers are tempted to default. Personal loans which are issued with high interest rates (32-50%) and no surety, are also big default candidates,” said Rajesh Malhani, banking analyst with Prabhudas Lilladher.
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