Rohit Bhatia (named changed) from Alwar in Rajasthan was a guarantor for a ₹1.5 lakh home loan that his neighbour took. However, when his neighbour defaulted on the repayment for three months, Bhatia started getting regular calls from recovery agents. Bhatia’s case is not an isolated one as many customers and their guarantors are complaining about harassment from recovery agents of finance companies.

Even as financial institutions are in the thick of action with regulations, the role of loan recovery agents is coming to light once again. This, after a Reserve Bank of India (RBI) order banning Mahindra Finance from using third party recovery agents for recovery and repossession of assets after an unfortunate incident at Hazaribagh last week.

The move came after reports that third party loan recovery agents working for M&M Finance allegedly ran over a 27-year-old woman with a tractor in Hazaribagh district of Jharkhand, crushing her to death. An argument had erupted between the farmer, his daughter and the recovery agents, local media reported.

Financial institutions outsource some part of their recovery and more importantly repossession of assets to third parties, especially in Tier B&C towns of India. It’s not clear if the RBI order benefits the consumers from the loan recovery harassment.

The loan recovery agents, on their part, say they are only trying to do the recovery or repossession within the targeted timeline. “If we don’t do the recovery or repossession in the stipulated time, the contract goes to another agency,” said an employee of Mumbai-based Badshah Recovery agency. “The commission after recovery comes only after two months from banks and non-bank lenders. By then, we must pay our collection team. Post-Covid, our business has reduced, as many banks and NBFCs rely on their internal resources,” he added. In a statement issued shortly after RBI’s order, Mahindra Finance said that it has not outsourced any collection activities in its vehicle finance business to any third party agencies and therefore, do not expect any impact on collections.

“We have a detailed policy in place for compliance of third parties with regard to repossession of vehicles,” said Ramesh Iyer, VC & MD, Mahindra Finance. “In light of the recent tragic incident, we have stopped third-party repossessions and will further examine whether and how third-party agents will be used in future.”

While banks and NBFCs, after the pandemic, face increasing default on loans, such companies may ramp up the role of staff or internal resources in recovery and repossession, thereby gradually eliminating third party interventions, experts said.

“We have been changing our policies based on the RBI norms. We no longer employ any third-party agents, as it is a sensitive issue for the regulator,” said the CEO of a large NBFC said on anonymity.

Shachindra Nath, VC & MD of UGRO Capital, recently mentioned in a televised interview “We have stopped third party repossessions and will examine whether and how third-party agents will be used in future.”

In another interview, Cholamadalam Finance said it has 1,500 external agents and employees accompany them for collections. They have another 13,000 in-house employees who focus on recovery. Shriram Transport, another non-bank lender, said all its recovery was being done in-house.

Mails sent by ET to these entities did not elicit any response till press time.



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