Ranchi, Sept. 24: Debate over outsourcing loan collection agencies has reignited following the death of a 22-year-old pregnant woman in Hazaribagh 10 days ago while trying to stop loan collection officers from taking away her father’s tractor.
Although the Reserve Bank of India does not allow undue pressure for loan recovery and has issued a loan recovery policy, financial firm operators say the outsourcing of loan recovery agencies cannot be stopped. However, you are not allowed to kill to collect credit.
The director of a financial firm with foreign operations, Pramod Kumar, said agencies are only hired to collect loans when employees of a financial firm are absent.
“The financial company doesn’t want to put much effort into repaying the loan when they find that a person who took out a loan is using one excuse after another to avoid repaying the loan. Rather than confronting them directly, the finance company prefers to outsource a labor agency. This saves companies from harassment and abuse of company workers for reclamation loans,” he said.
Another financial firm official backed Kumar, saying RBI prohibits collection agents from intimidating borrowers and phoning borrowers before 8am and after 7pm. RBI also warns against sending inappropriate messages to borrowers in any form, making threats or anonymous calls for collection of delinquent loans, or providing false and misleading information. RBI reminds lenders of their Fair Practice Code.
“The RBI guidelines are good, but sometimes they don’t produce results and then a request for undue pressure is required. Although the Hazaribag incident is unjustified and an extreme case, financial companies need to go beyond rules and guidelines,” the staffer said.
One financial firm official said, “When all the instincts fail in recovering a loan, financial firms look for an agency that has connections to muscle men or influential men in the area. The rate varies depending on the term of the loan due. The older the loan, the higher the repayment rate.”
A senior executive at the finance firm, which operates out of Club Road in Ranchi, said: “Loan collection agency work takes all risk for small commissions, which range from 1 percent to 2.5 percent of the non-performing loan amount, excluding fees for lifting vehicles. The fee for lifting bikes ranges from Rs 2500-3000 while the fee for lifting a truck ranges from Rs 15000-20000. The fee for lifting a tractor is approximately Rs 5000.”
When asked why no help was sought, the director of a microfinance company operating from Harmu said: “The police don’t care much about loan recovery. If police personnel are too close to the company, they may help in one or two cases, not all cases. That being said, police officers expect compensation, which is often much higher than the amount charged by loan collection agencies.”
A civil court attorney explained how the outsourced agencies are expected to work on loan recovery.
“Under Section 13(2), if a secured property becomes a Non-Performing Asset (NPA), the bank will send a notice to the debtor asking him to deposit the outstanding 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, after which the debtor cannot sell the property. After that, the bank hands over the account to the outsourcing agency, and the agency then assists the court in seizing the property.”
“Harassment and fights are usually reported at unsecured loan collections. The agency has an agreement with the bank to give them ownership of the property within a set period of time. The agency sends 15 days notice to the borrower to vacate the property. If the borrower receives a stay order from the court, the agency will not touch the property. If the borrower is unwilling to evict and if a fight breaks out, agencies are expected to be escorted by police, including women’s police,” the attorney said.
When asked why such methods are used despite established procedures and guidelines, he explains: “NBFCs or private lenders are under pressure to demand fast repayments due to internal constraints. So they also offer these agents huge commissions.”
The woman’s father, farmer Mithilesh Kumar Mehta, took out a loan from Mahindra and Mahindra (M&M) Financial Services, a rural non-bank finance company (NBFC), in 2018 and had to repay it in 44 installments of Rs 14,300 each. Mehta paid the installments until March 2020, when nationwide lockdowns to contain Covid-19 began and he became unable to work.
Mehta managed to arrange money for the final installment but the finance company asked for Rs 10,000 more. Despite an agreement that Mehta would have until September 22 to pay the money, recovery officers came to his home to confiscate the tractor on September 15.