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Modern man drives a mortgaged car over a bond-financed highway on credit-card gas.   Today’s young  believe in concept Spend now,  Save later ,Borrow and pay EMI, spending more, saving less and taking loan.  The young are well educated, skilled,have high expectations about their careers or income flows and  thanks to the attitude change borrowing is no longer viewed negatively. Be it a new mobile or some other household appliance, a wedding in the family or a foreign vacation, if you do not have money, just walk into a bank and get the money you need. In face of cash-crunch they look for credit card or personal loans to bail out.  But what if they are not able to pay their EMI’s for a month, two months, three months then? On defaulting loan one may has to face recovery agents, at times, harassment also at their hands. Hindi movie EMI (2008),starring Sanjay Dutt, Urmila, Arjun Rampal, looked at lives of urban Indians affected by one common problem, that of, accumulated debts which they are unable to pay. Our webpage Money and Fun  has  songs and Hindi movies related to money, for story EMI click Hindi Movies and Money:2000’s  This article is based on Economic Times article Pay up or Else  (21 July 2013).

Your son has taken a loan of 5 lakh from the bank and run away. Give me his number,” said the man who claimed to be a recovery agent with HDFC Bank. In mid-June, 82-year-old A L Bhargav got a call at around 10 pm at his Jaipur residence. When the senior citizen refused to share the number, the recovery agent repeatedly called and threatened him. Bhargav was forced to bear with the abuses silently . A L Bhargav’s son, Anand, had been a customer with the bank for over the last decade. The bank had found him creditworthy enough to sanction multiple loans against his name, which he had been repaying diligently. But in 2012, he was forced to quit his job and after failing at business, he found a job abroad. According to Anand, he had informed the bank executives concerned about his overseas assignment. He had also sought some time to regularise accounts. Anand said he knows that defaulting on a loan is wrong. “But what could I do once I lost my job? And if the bank wanted to collect on the loan, they should have contacted directly and not my father”

Ajay S, a customer with ICICI Bank, struggled to close a personal loan after he lost his job. The 23-year-old finally did manage to settle it but hardly had he closed out the personal loan when he started getting calls about the dues on his credit card. The youngster told the collection agent that he was not in a position to settle the dues on his card immediately and that he had sought some time from the bank. “This collection agency then started calling up my distant relatives whom they had tracked down, I suspect, using social media. The agency called up my relatives repeatedly and told them that I needed to settle my card dues if they wanted to live in peace”  Ajay admits that ideally he should not have defaulted on his dues. But he is indignant about the fact that the recovery agent concerned dared to harass his relatives. “Which law allows recovery agents to call up friends and relatives of a debtor without their permission, I wonder,” he asks.

Feroze, a customer who had defaulted on a credit card issued by Axis Bank, says a collection agent misbehaved at his office which forced the HR department to issue a warning. “The language [used by the agent] was so filthy that I don’t even want to repeat what he said,” he says going on to add that the recovery agent called up his mother and told her they would kidnap him unless the dues were cleared.

Harassment by Recovery Agents

Harassment by Recovery Agents

Instances of debtors, their family and friends getting threat calls have been reported from multiple locations across India. Consumer forum websites like consumercourt.in and consumerlaw.in are flooded with complaints from defaulters being harassed by recovery agents. Even legal online portal lawyersclub.com has been consulted by distressed defaulters who are unsure about how to handle the stress.

Note: We  found was that lawyersclub.com site is up for sale, consumercourt.in has cases reported in 2009.  But found site  lawyersclubindia.com with such cases reported recently for example Harrasment by icici banks recovery agents consumerlaw.in also having cases such as Unfair, unethical & illegal Practice by ICICI & Syndicate Bank credit card System where inspite of paying loans in 2006 CIBIL records were not updated till 2013 and then mentioned with settled remark / status.

Why the defaults?

At a time when economic growth has slowed down, the job market is tight with layoffs not uncommon and salary hikes not matching spiralling inflation, the risk of defaults on retail loans is on rise. Typically most of these individuals are young professionals in hitherto rapidly growing sectors like IT/BPO who are now grappling with the changed economic realities.

Banks are also lending more to individuals, retail customers, in a bid to rely less on a debt-heavy India Inc. For example At HDFC Bank,  the overall loan mix is 54:46 in favour of retail, with retail lending growing 26%, against wholesale lending at 17% . One way of mitigating that risk and reducing loan losses is by more efficient — and perhaps more aggressive — follow-up with defaulters of secured (home and auto) and unsecured (credit card and personal) loan.

Is Harassment Legal?

The harassment  is despite the fact that the courts have passed a series of judgements against aggressive recovery agents; and consumer commissions too have pulled up banks in the past for hiring musclemen to carry out their collection. The RBI had framed guidelines on how debt recovery agencies should approach customers and conduct their business in 2007. Back then, the banks were under tremendous pressure after the media reported extensively about debtors being harassed and physically assaulted by collection agents. In those days, most recovery agents were referred to as “goons”. In 2006, for instance, ICICI Bank was fined 55 lakh by the Delhi State Consumer Dispute Redressal Commission after recovery agents attacked a youngster and forcibly took possession of a vehicle.

In the years since, banks appear to have taken some steps to stop recovery agents from attacking customers. In recent years, the cases of physical assault of debtors appear to have been significantly reduced; the RBI ombudsman also reports that complaints against recovery agents have dwindled from over 1,600 in 2009 to 459 in 2012. Most recovery agencies have also become more professional given the strict guidelines framed by the RBI. The central bank mandates that a person can be employed as a recovery agent only after he completes 100 hours of training and passes a written exam on debt recovery. Customers are to contacted from 7am to 7pm. All calls and visits are made to customers at the registered details [numbers and addresses of the customers] with the bank.

However, despite these improvements, a significant number of debtors in the country continue to get abusive calls from recovery agents. Research done by ET Magazine suggests that HDFC Bank, ICICI Bank and Axis Bank , perhaps the three most aggressive banks on the retail front , have been getting the most complaints about abusive calls on portals dedicated to consumer complaints for at least five years now. Complaints against Standard Chartered Bank, Citibank and HSBC Bank for sending collection agencies which violate regulations have also been posted on consumer websites.

When do recovery agents step in?

Banks stringently monitor EMI repayment of customers. The moment a debtor fails to make a payment, the system ensures that he gets a call and thereafter the follow-up is quite persistent, Banks classify a loan as an Non Performing Asset (NPA) when a borrower fails to make interest or principal payments for 90 days. Insiders in the recovery business say that anyone who has defaulted for more than three months on a loan could end up having to face recovery agents. At this point, normally, a recovery agency will dutifully call the customer and merely remind him to pay his dues. It is difficult to comprehend whether there is a default threshold for retail loan and credit card customers, crossing which, recovery agents feel free to intimidate people. Procedure for debt collection is as shown in picture below:

Procedure for debt-collections

Procedure for debt-collections

The significance of recovery agencies can be gauged from the fact that some of these private banks in the country employ over 1,500 agencies each. Though banks says that  agreements with external vendors emphasise on compliance with the code of conduct and explicitly cover the bank’s expectations of vendors in their interactions with customers both face to face and over the phone. For example The HDFC Bank says it ensures that all telecallers and field executives are trained by Indian Institute of Banking and Finance (IIBF) and undergo a mandatory DRA certification. And agency penal action is initiated against the vendor as per internal norms for any violation of policy guidelines. Steep collection targets are set by the banks or when the recovery agents are asked to recover from people who have no means of repayment, it is possible that some agencies could still be bending a few rules.

Banks have observed that in some cases, complaints are being used as an avenue for evasion of outstanding legitimate dues or to negotiate for higher waivers. 

Recovery Agencies

The Matrix Group is a private company that has a credit risk unit as well as a debt recovery team and has been in business for the past 11 years. The head of the company Rajiv Mahajan says that his organisation, which employs 500 people and earned around 8 crore last year, has always tried to maintain standards in debt recovery. “All the conversations between telecallers and debtors are recorded and nobody is allowed to abuse any debtor”

26-year old Manju Bhatia who has started an all-women debt recovery team, Vasuli, where Bhatia is a joint managing director, employs only women as recovery agents to collect. The agency has collected on debts worth 500 crore under her stewardship. Her story has been captured by Rashmi Bansal in her book on women entrepreneurs titled Follow Every Rainbow (Westland, 2013). Bhatia was almost forced into the business years ago after Vasuli was presented with the tough choice of recovering from a minister. Bhatia was then an employee with the firm, which decided to send her to the minister; she recovered the proceeds without any ado.She understood that male recovery agents often find it tough to deal with fraudsters who conveniently file false cases against the collection agents. “I thought why not employ more women as recovery agents. Because any home or office we go to, we get a lot of respect”

Reference : Economic Times article Pay up or Else  (21 July 2013).

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We were shocked when we read the article. Brought up by parents who insisted on saving, married into a family where if loan taken must be for building assets(education loan, home loan),must be within your paying capability and must be paid first, I thought this problem is not so severe, till I started discussing with my colleagues . I was shocked to know that those in late 20’s were actually servicing personal loans and not paying credit card bill fully, though thankfully none of them had to face recovery agents. Do you think, younger generation is taking loan casually? Are public sector banks better than private banks? Have you defaulted on a loan? Did you have to face recovery agent?

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