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Dealing with loan recovery agents

October 1, 2007
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When I first heard about the suicide of the father of three girls (all below the age of 10), Prakash Sarvankar, because of harassment by loan recovery agents, it reminded me of the suicides of indebted Vidarbha farmers and how harassment by loan recovery goondas (goons) played a large part in driving them to suicide. My uncle who is a farmer has also told me of horrifying tales about how farmers in Vidarbha were being humiliated and driven to the edge of despair by loan recovery agents. In India, it is not easy for individuals to declare themselves bankrupt, like in the USA.

It almost seems as if the attitude of the banks is that if you don’t pay up then you can go kill yourself! This inspite of the fact that the Supreme Court had rapped banks on the knuckles earlier this year for not following the RBI guidelines and continuing to use goons to recover loans. They should “deal with defaulters as per the procedure laid down in the law and the Reserve Bank of India guidelines” – that is what the court had said.

The banks have a right to recover the dues but they cannot use force to recover the loans… you can’t send goondas to their (defaulters) house…there are ladies alone at home…

In Sarvankar’s case, the loan reovery agents, from a reputed bank (ICICI), entered his home several times and humiliated him in front of his wife and three small children. He had taken a loan of Rs 50,000 from ICICI Bank, and was “145 days past due on his loan repayment.” Another recent case, reported just yesterday, was about HDFC Bank investigating a complaint “that one of its employees threatened to kill a customer’s nine-year-old son and others of the family over non-payment of credit card bills.”

Are banks giving loans after a thorough scrutiny?
I feel all the more strongly about this because there an increasing number of cases of people who cannot pay because banks are being irresponsible in disbursing loans. It says here:

In India, the situation has worsened due to banks aggressively pushing loans, even unsecured ones, to individuals to prevent idle assets on their books…most customers in India are not financially educated and banks are luring them to take more and more loans, often without checking their financial position…

Well, we all know about credit cards being foisted on us, at times without even being asked! All kinds of tricks are used to dump credit cards on unsuspecting people, and there are constant calls to take loans. I get such a call every other day inspite of having registered on the DNC (Do Not Call Register). People like you and me are probably not tempted, just irritated, and can just tell the bank to go jump, but not everyone is in the same boat. I know of a case of a man who works in a government office and gets just about Rs 6000/- a month (he has three school-going children) who took a credit card and is now stuck with a debt.
And in Sarvankar’s case, the biggest mystery is why the loan was given to him in the first place! His own wife has questioned the bank about this because her husband was apparently not eligible for a loan as he was not working! She also claims that she had no idea the loan had been given. Well, if banks prefer to give loans to people who are unemployed or without checking if the person has the capacity to pay them back, what can they expect but non-payment?

Thankfully, in Sarvankar’s case the law has acted. The four recovery agents were arrested immediately and so was the owner of the agency contracted by ICICI to recover the loan amount. The bank too seems to be chastened and has decided to compensate Sarvankar’s family with an ex-gratia payment of Rs 15.50 lakh. And ofcourse it has sacked the agency whose employees were involved in this incident.

What are the banks not allowed to do?
Well, debt recovery agents (DRA’s) are not allowed to enter a person’s home without permission. And they have to carry an identification card with them at all times. Also, RBI rules lay down that the state DRA’s can contact customers only between 7.00 a.m. and 7.00 p.m. and has to maintain civil discourse. The customer is not to be humiliated publicly or in front of his family members.

What should borrowers do?
Rediff.com has some good advice for those who find it difficult to pay back the money they have borrowed. They say:

1. Avoid giving post-dated cheques to banks because if a cheque bounces, it is a criminal offense and the punishment can be a two year jail term. This gives the lender an even greater leverage over the borrower.
2. As soon as you realise that you have a problem, discuss the issue with the bank, even before you default on a loan payment. Its not just the DRA’s you have to fear, but mounting interest rates. This can be particularly bad if it’s a credit card payment which is not paid on time.
3. If necessary sell off assets. If selling off the asset means you have to go into a smaller house, so be it. But remember that if you default and you have mortgaged your property, you lose even items inside your home.
4. If things go so far that the bank sends you a legal notice (after reminders have failed to elicit any response from you) then you need to talk to the bank immediately. Try and reach a settlement. If you can convince the bank that it is a temporary problem, that you are still credit-worthy and if you have a good re-payment record, your bank could agree to a compromise. They could either agree to to re-structure the installments, or settle the matter by accepting a smaller amount in a lumpsum payment.
5. If you have absolutely nothing left, and are at the end of your tether, you need to seek police protection. But keep a copy of all notices and reminders because these notices specify a period after which the bank can take action against you.

Moneycontrol.com gives some tips on how to handle threats from banks.

1. Call up the bank and complain bitterly about any harassment from DRA’s.
2. Threaten litigation if need be.
3. Go to the nearest police station and file a complaint.
4. Keep a tape recorder handy. In the tape, try to get the agent to clearly state what he wants from you, what bank he is from, his name, and his agency’s name. It is important to keep proof of all threat calls. Even better, install a camera in your home if loan recovery agents dare intrude there!
5. You can sue the bank individually, if you have the resources.
6. If you do not want to get involved personally, approach a consumer action group.

Banks have a responsibility
Banks need to be different from moneylenders of yore. Giving loans knowing full well that the party is not credit worthy is unprofessional, whether deliberate or not. Sure, banks can make a mistake, a genuine mistake. But the way many banks are running their personal loans business makes me suspect that everything isn’t above board.

In some cases, they may have given the loan to a credit-worthy person, but an unforeseen situation like a sudden health expenditure, job loss or death, or a collapse of a business could have made it difficult to pay back the loan. But in such situations, things can get sorted out, although with a lot of heartburn. In such cases, the banks and the borrowers need to hammer out a solution and this is in their own interest. Not caring whether the defaulter lives or dies is unforgivable.
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31 Comments leave one →
  1. October 1, 2007 10:37 am

    wonderful article

  2. October 1, 2007 11:40 am

    Nita: Good post.

    Loan recovery is necessitated by loan defaults. Banks are not for charity so both parties – lender and borrower – need to be aware and responsible before they enter into an arrangement.

    One of the key hindrances in responsible loans in India is that there is no way to check an individual’s credit rating in an organised way. Borrowing money is a relatively new phenomenon in India so the market probably was not attractive for firms like Experian to open shop. AFAIK some software firms keep a ‘negative’ list – and let me not even start on the privacy implications of it all – which banks sometimes pay to use.

    Another thing is that for people, who are not paying tax on payroll, banks may find it difficult to ascertain their real income. This is slowly being addressed with firmer requirements re PAN cards etc but it is still in its infancy I imagine for less organised sectors as agriculture might be. When real income can’t be ascertained, it is bound to lead to bad judgement re repayment capability of the borrower and hence the possibility of default being misjudged too.

    The speed of liberalisation and the competition for growth in the banking sector may also contribute to irresponsible lending. Pretty much everyone appears to have made their business plans based on that ephemeral middle class of 350M people but the reality is that when they come to sell to this middle class, they come up against a range of cultural, attitudinal and other barriers. This has been the experience of purveyors of goods and services in several product categories. So under pressure to perform, they turn to a customer who is vulnerable but also high risk.

    Since they are high risk, chances are they are also being lent money at much worse terms than a customer whose risk can be assessed better. This is no different from sub-prime lending in the US btw but the differences in banking regulation – RBI specifies CRR ratios which are quite strictly enforced so the banks can only lend so much and I do not think loan securitisation is a developed ‘commodity’ in India yet – may be a saving grace.

    I think the lending environment in India is very unstructured and not yet very well regulated and that should be the focus of systemically sorting the problem.

    On the other hand, borrowers probably need a whole lot of tools in their possession too – literacy and numeracy will be a start; understanding the terms and understanding their rights as consumers is very important (in a competitive market, surely somebody will lend at better rates); understanding their rights should loan recoverers come to the door is also important.

    I think at a macro level it is a problem emanating from rapid economic growth in a highly disparate society; at a micro level it is a tragedy of illiteracy on many counts..

    The Juggernaut moves on, mowing poor people down in its wake, eh?

  3. October 1, 2007 12:08 pm

    Now, this is the kind of stuff I would like to see advertised between cricket matches. Information like this can really save and improve lives. Informative, +5.

    I wonder if India can ever move towards a social security system.

  4. October 1, 2007 12:17 pm

    Anshul:

    @ I wonder if India can ever move towards a social security system.

    If I may..

    The whole of Europe is made up of welfare states (different degrees of course). Unless cultural factors can mitigate the negatives of a social security system, a welfare state is not a great model to adopt.

    If you look at the UK, we have all this debate about immigrant workers. Many of them work in fruit picking, cleaning (ever see who cleans Heathrow?), and other ‘menial’ jobs that are beneath the natives. So what we have is a growing number of natives living off the benefit system and they have no incentive to get off their arses and work. And they say oh we cannot find work because of immigrants. I wish an experiment were possible to show how this is patently untrue..

    We are amongst the most highly taxed countries, and we have not a lot to show for it, unlike in Sweden etc where taxes are higher but things work.

    I think the effort should be on enabling – through education, through skills training – rather than disabling – through social security. India still has a relatively clean slate and can make positive changes, if there is political and social will for it.

  5. October 1, 2007 4:58 pm

    Very useful post… I have sent copy of this content to all my staff & friends.

  6. October 1, 2007 5:20 pm

    very detailed
    it is a catch 22 again most banks would ideally give loans to people who dont want to take loans.

    the banks that pursue aggressive loan portfolios suffer higher default or bad loans, plus they dont do proper scrutiny of the borrower.

    the other side of the coin
    People in india are also pretty good too at wilful default , some are downright irresponsible- mostly the the big politicians and industrialists and relatives of coop bank management default and escape – but action against them?? remember the congress leader kamath from mumbai who took a loan from sic bank and defaulted??
    yes there are some that genuinely cant pay back due to say a business downturn lastly only the small man suffers, cause he has no voice on court verdicts read my new post..

  7. October 1, 2007 5:22 pm

    shefali rightly said
    my sis also complains about it
    she says they – benifit seekers should be made to work to get benifits say depending upon their ability as a cleaner etc

  8. October 1, 2007 5:30 pm

    Thanks Anshul, Ankur and Bharath all for your response!

    Shefaly, this problem was endemic to India always but it wasn’t banks, but moneylenders who did it! Hindi movies of the seventies are rife with these examples. Poverty is a cause for people’s desperation for that loan…and its really sad to see reputable banks take the place of moneylenders, who in fact were quite happy to provide loans without any sort of scrutiny. While what you said is right, illiteracy is a problem (as was the case of many Vidarbha farmers who mostly approached moneylenders), financial illiteracy is also endemic amongst the educated.

    Prax your raised a very important point, about wilful default and its the rich who tend to do it!! I have also heard cases of the rich and influential getting huge amounts as loans from banks for their new business ventures even though their business model was flawed. Maybe its corruption, maybe its a tendency to trust the rich, and as Shefaly said compounding the problem is an absence of a “check on an individual’s credit rating in an organised way.”
    This personal loans business of banks (where the cap is Rs 50,000/-) is what I feel is done in the most disorganised way.

  9. October 1, 2007 6:28 pm

    Thanks Nita and Prax.

    On wilful default, may I cite my own IIM Ahmedabad as an example of shamefully egregious behaviour? Students who borrowed from the campus SBI in the 1970s never returned the money. By the time we got there in the 1990s they did not want to hear the L word coming from us. The alumnus magazine publishes names of defaulters even now in mid-noughties in a new century but it does not shame people into paying up…

    Perhaps it shows something altogether more sinister about the nexus between education, money and obligations in India?

  10. October 1, 2007 6:36 pm

    Shefaly, the word nexus itself has a whole lot of sinister meaning in India!
    But your example of the IIM case is shocking! These guys should be shamed into paying up! They must be earning packets! Also I didn’t know you were an IIM graduate. I guess I did sense the brilliance.🙂

  11. October 1, 2007 7:05 pm

    Nita: Thanks. You are kind. You are right most of them make a lot of money and you should see how old the loans are… It is shameful.

    I know ‘nexus’ to us evokes images of smugglers of the yore, now only supplanted by politicians-criminals-rich and powerful people connections. (It does not help that I am writing a section on the ties between the food industry and the UK government in the thesis at the moment) 🙂

    Thanks.

  12. October 1, 2007 9:31 pm

    nita its simple the rulers can get away with anything
    i forgot to add do u also remember about our Presidents economic ventures?

    the other issue is also small farmers taking loan to do hi risk farming of cash crop and for marriage of daughter under guise of farm loan and lastly for alchoholism.

    it isnt one sided but yes recovery agents are sometimes brasen and ruthless , but even educated indians are also thick skinned as shefali pointed out

    american system of student loans is good even though it is quite repressive and student loans are not subject to bankrupcy

  13. October 2, 2007 12:07 am

    We have seen Banks too going bankrupt sometimes just b’coz of soo much of bad debt due to loans..

    Thus bank investors are also focus for concern… Bank shouldn’t take more than calculated risk.. I mean RBI guidelines n process is very important to drive this business in balanced n secured way…

    India has great oppurtunity to make it work better. Great challege ahead for RBI.. I am watchin Fin. Minister’s move on this… I guess he can solve the problem… He is clever, I am sure there are many smart ideas in his head.

  14. October 2, 2007 12:55 am

    I’d like to add another player to the story.

    dnaindia report
    cooperativeresearch

    Probably more dots need to be connected, but it wouldn’t surprise me if the manner in which biotech and genetically-modified seeds have been used in India played some role in leading up to the whole farmer-bank-loans problem.

    Edward Luce’s book (“In spite of the Gods”) mentions some other factors linked to corruption, like availability of water and electricity to rich and influential farmers who overuse those resources. Just wondering if those factors played a part in Vidarbha too.

    Shefaly would probably know more about this issue and how it connects to the problem.

  15. October 2, 2007 12:57 am

    Shefaly, you make a very interesting point about the incentives or rather the lack of them in a welfare state.

    First of all, I believe that a working system of nationalized health, security and emergency services is a crucial point in a nation’s growth. This, I think, we desperately need. Even if it comes a bit inefficient and expensive, it will propel our growth like nothing else.

    As far as welfare states with social securities are concerned, I think we need to pause and ask ourselves what a successful nation is? Is the successful nation an anthill of coordinated hard working people? Can success be measured by wealth of the state?

    I like to think that wealth and education and things like that are not worthy objectives of a nation state. They are ultimately just the means for achieving the actual objectives. The actual objectives of a nation must be it’s culture. It must be the availability of human rights equally to all it’s citizens. Those are worthy goals for a nation state.

    If this premise sounds good that maybe we should be heading towards a welfare state.

  16. October 2, 2007 10:57 am

    @ Amit: You mean GM seeds? I have done a lot of work on GM crops regulation and economics but not in the context of India. I will think about it in 3 weeks (sorry!) and come back and post here or on my blog. Thanks for the ‘seed’ of the idea🙂

    @ Anshul: Do we not already have nationalised security and emergency services? Part of our health care system is nationalised too and the system is on the whole more like the US’s than the UK’s in that the poorest can get free treatment but most in the end shell out. (In fact it constantly surprises me how few people even now buy health insurance when they can afford it…).

    As for welfare states with social security: well anthills of hard-working people may not be the hallmark of success, they sure are ESSENTIAL to keeping the social security system going.

    Which is why ageing populations are a concern. (now the UK has the highest birth rate in years, thanks to migrants, who incidentally work and except a few communities – Portuguese, Pakistanis, some migrants from African countries – do not rely on the state, instead putting a lot more in. The natives however are finding that they do not have much education (all free to them), skills (much training is free too), jobs and money. Dole becomes cheese to the rat!

    And from the state, boy do we have equal rights – anybody who wishes to scrounge off the state can; but people who are not white report consistent discrimination in job hunting.

    I think we over-estimate how many people willingly work in India. If we all collect the stories of our maid-servants with alcoholic/ gambler husbands, we will have a statistically significant sample of willing lay-abouts will we not? How will the welfare state offering social security treat them?

    In the UK Labour’s back to work programme in the UK has been successful in bringing people to work, but only those who wanted to. We now even have a term NEETs to describe 16-24 year olds Not in Education, Employment or Training. And the number of chronically on dole is amazing, which includes some 3M people claiming disability benefit of whom some are frauds but some genuinely want to work.

    There are more problems in the welfare system than gains.

    Equal opportunity? Yes. Equality? Er, no, because it is a pipe dream.

    Those are my views anyway. I would write more about other European experiences but I have to make tea and get cracking back on the thesis draft, sorry…

  17. October 2, 2007 11:00 am

    Oh btw neither socialised medicine (universal coverage, free at the point of delivery) as in the UK nor paid-at-the-point-of-delivery in the US create any incentives for prevention in the populace. Both countries are equally unhealthy with lifestyle diseases, which are preventable. There is evidence that shows people, despite knowing the key principles, do nto strive to make changes whether they or someone else pays for their treatment afterwards.

    For a population of 1B, predisposed to a range of chronic diseases, I think diverting money to create a fully socialised healthcare system will divert even more attention and the meagre funds for our public health programmes which I think we can ill afford in India…

  18. October 2, 2007 12:05 pm

    Shefaly, there was a post on medical tourism which elicited a lot of discussion on this issue of social security. You might find it interesting.

    Amit, the issue why the farmers of vidarbha lost out is a complex one. What I find interesting is that even in Gujarat the farmers were growing btcotton but they didn’t suffer as much. Its something to do with the way the gujarat govt. handled it, giving subsidies, fixing prices etc.

    Bharath, Prax, and Anshul thanks for sharing your views.🙂

  19. October 2, 2007 4:38 pm

    Shefaly, what you say on the whole does make a lot of sense and I agree with most of it. Providing health to a billion people is quite the challenge. But, it’s a challenge we should meet. A hungry or a sick person cannot afford to care much for his rights (including unfortunately, his right to live in some cases). if you improve the health of a billion people, it’s gonna go a long way. Perhaps complete coverage like US, UK or Canada should not be on our list and perhaps we need to immensely innovate and create something uniquely Indian here but we do need something. And this something should provide for everybody if not everything.

  20. October 3, 2007 4:42 pm

    Very informative post and comprehensive discussion in the comments! Nothing for me to add…:-)

  21. amreekandesi permalink
    October 7, 2007 12:40 am

    Who is at fault here – the bank for giving out loans to undeserving people, or the people who take loans they have no means of paying back ?

    Banks know that litigation is not going to get them their money back. So they are trying force. Of course with such a scheme things are bound to get ugly. Its an evil cause and effect circle.

    Great, very informative post.

    thanks amreekandesi
    – Nita.

  22. November 22, 2007 12:13 pm

    Hi, Nita..you have already tackled consumer rights issue. Here is an interview of Lt. Col Rajesh Yadav who won a case against ICICI bank for unfair billing: http://alchemistpoonam.wordpress.com/2007/11/20/an-interview-with-consumer-rights-champion/

  23. Vivek Khadpekar permalink
    November 22, 2007 12:35 pm

    Amreekandesi:

    If the banks, in their desperation to sell, sell, sell, omit to adequately check out the borrower’s creditworthiness, it is not fair to call the borrower “undeserving”. Aggressive salesmanship deserves a bloody nose, and the loan defaulters are administering it. More power to their fists, I say.

  24. Shilpa permalink
    January 1, 2008 11:28 pm

    Hi all, I read all the articles and I am in very bad situation. I took loan from co-operative bank and some people fooled me. I paid them the money. But now they want the intrest as 60000rs on 70000 loan amount. My father is retired. I am married and with my in laws. How can I pay this money. When I paid the money they told me that they will close the account and told me to come there, when I went there nobody was there. Now after one year they started troubling my parents. I have all the recites of money paid. Don’t know how to solve this matter. That pathpedhi is almost closed but still they are troubling me.
    Please advice me.

  25. Shilpa permalink
    January 1, 2008 11:31 pm

    The loan recovery officer go to my parents and threaten them. All the society people look very strange when they see the recovery office jeep. They made my parents life bad.

  26. January 2, 2008 8:49 am

    @ Shilpa:

    Please approach a lawyer and the police.

  27. Dr.Jog permalink
    January 3, 2008 9:54 pm

    Counseling and pusuation are the only ways to get the recovery in bank dues and banker is a legal person have to obey princilpe of human right.While selecting agent the manadatory rules has to be understood by the agents properly. It is unfair to use mussle power and rough language to borrowers.They are the real customers paying survival to the banks.-Dr.Jog

  28. rajesh permalink
    January 4, 2008 6:20 pm

    1. Collect all receipts of repayment made to the bank
    2.: Ascertain whether you have actually repaid the whole amount as per the terms of the loan.
    3. With these facts , visit and meet the Branch Manager of the bank once and explain the situation
    If any other query please write..

  29. rajesh permalink
    January 4, 2008 6:22 pm

    @ Ms. Shilpa:
    1. Collect all receipts of repayment made to the bank
    2.: Ascertain whether you have actually repaid the whole amount as per the terms of the loan.
    3. With these facts , visit and meet the Branch Manager of the bank once and explain the situation
    If any other query please write..

  30. Kumar permalink
    July 19, 2009 12:33 pm

    My one friend has taken personal loan from ICICI Bank .One EMI has bounced .The recovery agent is calling samultanepously .My friend told them that he will pay after 7 days after money will come in hand but recovering agent still disturbing and telling to pay immediately .

    Bank has taken PDCs . When bank can produce PDCs .My friend definitely pay EMI amount with interest .But why recovery agent is calling and exchanging this information
    to other persons in absence of my friend ?

    Kumar, one should not take this lying down. It is necessary to complain to higher authorities, the RBI for example. It is against RBI rules what this bank is doing. – Nita

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