Banks should follow self-regulation on loan recovery practices: IBA
By Neelima Shankar
Nov 23, 2007
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New Delhi: The debate whether the banking system in India needs a legislation or not to curb the menace of harassment and mishandling by the loan recovery agents has got a new dimension with the Indian Bank's Association (IBA) taking the stand that self-regulation by banks is the best way to tackle such unfortunate events.

The recent spurt in such incidents, which led to a lot of hue and cry in the media, regulatory agencies and legal system had forced the Reserve Bank of India (RBI) to threaten the banks with a legislation if the continue with their misdemeanors. Later it was clarified by the Finance Minister that the government is yet to receive any formal request from the RBI regarding this matter.

The economic boom of the past decade had led to an increased off-take of loans especially small ticket personal loans, two-wheeler loans and car loans. With these segment witnessing a high default rate, the incidents of loan recovery excesses also increased and few of them even led to suicides by the victims. Reacting to the situation big players in the small-ticket loans segments like ICICI decided not to lend any further, other banks like HDFC and CitiBank adopted a more cautious approach and rigorous screening of borrowers before lending.

IBA had earlier stated the need for proper training of the loan recovery agents. Stressing on the fact that loan recovery process should be properly defined and the agents should act within the parameters of law, H N Sinor, Chief Executive IBA said, “Since we have moved from a regulated environment to a more liberalized environment, there is a case for self-regulation by banks.”

Taking a cue from the loan recovery processes in UK and US, IBA discovered that there are no proper laws when it comes to recovering small-ticket personal loans. The sheer number of such loans makes the loan recovery process a daunting task. The legal route to such recoveries is very time consuming and can sometimes take years just to settle one case.

This year's annual bankers' conference to be hosted by Bank of Baroda (BoB) and the IBA at Mumbai is expected to yield some guidelines regarding the loan recovery agents and their practices. Aptly titled 'Indian Banking Towards Global Best Practices' this two-day event commencing on 26 November will have five sessions catering to this theme.

(Comments Posted : 1) Post Your Comments
1. dear sir ,
in my point of view a man can lend money in private finance what ever may be the interest.but one should not take any personal loan from bank.becase during recover time the bank shoiws their real face by harrasing and scolding them in ugly words without prejudice.which leads to dipression and psychological disorder.the recovery people does not act in a fair practice insteed they realy show their musles power and abrubtly creating goondaism.
jakeer.n (Posted: Jun 8, 2008)
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