Ranchi, September 24: After a 22-year-old pregnant woman in Hazaribagh died 10 days ago while trying to stop loan collectors from removing her father’s tractor, the debate has resumed on the outsourcing of loan collection agencies.
Although the Reserve Bank of India does not allow the use of undue pressure to collect loans and has issued a guideline for the collection of loans, the finance companies in charge say that outsourcing the agency for collection loans cannot be stopped. However, they are not justified in killing to collect a loan.
The director of a financial company with foreign exposure, Pramod Kumar, said that agencies are hired for loan recovery only when the staff of a financial company fails.
“The finance company does not want to bear a heavy burden for the recovery of the loan when it finds that a person, who has taken out a loan, takes one pretext after another to avoid the repayment of the loan. Instead of taking a direct confrontation, the finance company prefers to subcontract an agency for the work. This saves the companies harassment and misuse of the company’s workforce for recovery loans,” he said. -he declares.
Another employee of the finance company supported Kumar saying that RBI prohibits debt collectors from intimidating borrowers and calling borrowers before 8 a.m. and after 7 p.m. The RBI also warns against sending inappropriate messages to borrowers in any form, threatening or anonymous calls for collection of delinquent loans or false and misleading statements. RBI reminds lenders of its code of fair practices.
“The RBI guidelines are good, but sometimes they don’t work and then an excessive pressure requirement is required. Although the Hazaribag incident is unjustified and an extreme case, financial companies must go beyond rules and guidelines,” the employee said.
An employee of a finance company said: “When all tact in collecting loans fails, finance companies look for an agency with connections to strong men or men of influence in the locality in question. The rate varies according to the duration of the loan due. The older the loan, the higher the recovery rate.
A senior finance company executive operating out of Club Road in Ranchi said: ‘The loan collection agency works take all the risk on their head for a minor commission of between 1% and 2.5 % of uncollectible loan amount other than vehicle lift costs. The charge for lifting bicycles ranges between Rs 2,500 and Rs 3,000 while the charge for lifting a truck ranges between Rs 15,000 and Rs 20,000. The charge for lifting the tractor is around Rs 5,000.”
Asked why the aid is not being taken, the manager of a micro-finance company operating in Harmu said: “The police are not very interested in loan recovery. If the police personnel are too close to the company, they can help in one or two cases, not in all cases. Apart from that, the police officials expect a reward which most of the time is much higher than the amount charged by the agency’s contractors for loan recovery.
Explaining how outsourced agencies are supposed to work for loan recovery, a civil court attorney said.
“Under Article 13(2), when a secured asset becomes a non-performing asset (NPA), the bank sends a notice to the defaulter, urging him to deposit the outstanding amount within five days. If the debt is not repaid, the bank takes possession of the property under Article 13(4) and publishes this information in the newspaper, after which the debtor cannot sell the property. After that, the bank hands over the account to the outsourcing agency, and then the agency helps the court seize the property.
“Harassment and fighting are commonly reported when collecting unsecured loans. The agency has an agreement with the bank to secure the property within a stipulated time. The agency sends a 15-day notice to the borrower to release the property. If the borrower gets a stay order from the court, the agency does not touch the property. If the borrower is not ready to leave and in case a fight breaks out, the agencies should be accompanied by police officers, including female police officers,” the lawyer said.
Asking why such methods are employed despite established procedures and guidelines, he explains that “NBFCs or private lenders are under pressure for quick recoveries due to internal constraints. Thus, they also offer huge commissions to these agents.
The woman’s father, farmer Mithilesh Kumar Mehta, had taken out a loan from Mahindra and Mahindra (M&M) Financial Services, a non-bank rural finance company (NBFC), in 2018 and was due to repay it in 44 installments of Rs 14 300 each. Mehta paid installments until the nationwide lockdowns began to contain Covid-19 in March 2020 and he was unable to work.
Mehta managed to find money for the last 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 home to seize the tractor on September 15.