Ranchi, Sept 24: After the death of a 22-year-old pregnant woman in Hazaribagh 10 days ago in her attempt to stop loan recovery agents from taking away her father’s tractor, debate again started about outsourcing of agencies for loan recovery.
Though the Reserve Bank of India does not allow use of any undue pressure to recover loans and have issued a guideline for loan recovery, those running finance companies say outsourcing of agency for loan recovery cannot be stopped. They, however, are not justified in killing for loan recovery.
Director of a finance company having foreign exposure, Pramod Kumar, said agencies are hired for loan recovery only when staff of a finance company fail.
“Finance company does not want to take much burden for the recovery of the loan when it finds that a person, who has taken out a loan, is taking one pretext after another to avoid loan repayment. Instead of taking direct confrontation, the finance company prefers to outsource some agency for the work. This saves companies from harassment and misuse of company manpower for recovery loans,” he said.
Another finance company employee supported Kumar saying RBI bars recovery agents from resorting to intimidation of borrowers as well as calling the borrowers before 8 am and after 7 pm. The RBI also warns against sending inappropriate messages to borrowers in any form, making threatening or anonymous calls for the recovery of overdue loans, or making false and misleading representations. RBI reminds lenders of its Fair Practice Code.
“The RBI guidelines are good but sometimes it fails to yield results and then a requirement of undue pressure is required. Though the Hazaribag incident is not justified and is an extreme case, finance companies have to go beyond rule and guideline,” the employee said.
An employee of a finance company said: “When all tact to recover loans fail, finance companies look for an agency having connections with muscle men or influential men of the particular locality. Rate varies according to duration of due loan. Older is the loan, the higher the rate of recovery.”
A senior manager of the finance company operating from Club Road in Ranchi said: “Agency works for recovery of loan are taking all risk on their head for minor commission ranging between 1 percent to 2.5 percent of bad loan amount other than charge of lifting vehicles. The charge for lifting bikes ranges between Rs 2500 to Rs 3000 while charge for lifting a truck ranges between Rs 15000 to Rs 20000. The tractor lifting charge is approximately Rs 5000.”
Asked why help is not taken, the director of a micro finance company operating from Harmu said: “Police hardly take interest in loan recovery. If the police personnel are too close to the company, he may help in one or two cases, not in all the cases. Apart from this, police officials expect award which most of the time is much more than the amount charged by agency outsources for loan recovery.”
Explaining how the outsourced agencies are expected to work for loan recovery, a civil court lawyer said.
“Under section 13(2), when a secured property turns into a non-performing asset (NPA), the bank sends a notice to the defaulter, urging them to deposit the pending amount within five days. If the debt is not repaid, the bank takes possession of the property under section 13(4) and publishes this information in the newspaper, following which the debtor cannot sell the property. After this, the bank hands over the account to the outsource agency and then the agency assists the court in attaching the property.”
“Harassment and fights are usually reported in recovering unsecured loans. Agency has an agreement with the bank that it will get them possession of the property within a stipulated time. The agency sends a 15-day advance notice to the borrower to vacate the property. If the borrower gets a stay order from the court, then the agency doesn’t touch the property. If the borrower is not ready to vacate and in case a fight breaks out, agencies are expected to be accompanied by police including lady police,” the lawyer said.
On asking why such methods are employed despite established procedures and guidelines he explains “NBFCs or private lenders are under pressure for fast recoveries due to internal constraints. So, they also offer huge commissions to these agents.”
The woman’s father, farmer Mithilesh Kumar Mehta, had taken a loan from Mahindra and Mahindra (M&M) Financial Services, a rural non-banking financial company (NBFC), in 2018 and had to repay it in 44 installments of Rs 14,300 each. Mehta paid the installments until nationwide lockdowns to contain Covid-19 started in March 2020 and he was unable to work.
Mehta managed to arrange money for the final installment but the finance company demanded Rs 10,000 more. Despite an agreement that Mehta could pay the money by September 22, recovery agents came to his house to seize the tractor on September 15.