Outstanding loans given for consumer durables, according to the RBI, were Rs. 8,831 crores in May of this year. Meanwhile around 28 million credit cards have been issued by the Indian Banking Industry so far.

The borrower, to stay out of trouble with the bank, has to start repaying a loan in monthly installments, or within a period of 90 days the loan becomes a “bad” loan, and the bank sets the recovery agents after the consumer, if there is no response to the phone-calls from the bank for its recovery of loan. The commission on the money recovered by the agent can be a good 5 percent, for which reason the codified norms that the agents are expected to follow for recovery of loans are more often ignored than not. All these problems arise because the banks focus on gaining market share without doing their homework about the debt profile of their prospective borrowers. They do not conduct pre-sanction surveys to determine the payback capacity of the borrowers.

On the 1st of November, The Economic Times reported that the State Bank of India, to deal with this situation, had put out an advertisement for hiring around 3,000 marketing and recovery officers who would pursue a policy of “soft recovery” of loans, to circumvent the eventuality of landing up in court for ‘abusive practices’.

Banks, and specially their recovery practices of loans, have been under the scanner of some State Governments and in some instances of the local police, for their approach to recovery of loans from defaulting customers.

Meanwhile the RBI is working on comprehensive guidelines to pin responsibility on banks for using the services of recovery agents with criminal backgrounds. RBI has said that it would bring out a circular for engaging recovery agents by November 15, and that officers would be hired across the country on “contractual” basis with a compensation package of Rs. 2 lakh per annum.

This should, to some extent, succeed in rectifying the unacceptable current practices of loan recovery being pursued by banks, “which no civilized society governed by rule of law can brook.” The proposed guidelines will also make it mandatory for the banks to publish the names of its recovery agencies. Furthermore, the agents will be required to use registered telephone numbers which will be listed on each bank’s website.

Transparent and ethical norms should become operational between consumers and service providers, or where indeed is the difference between the tech-savvy, digitalized, 21st century banks and the money-lenders of yore, immortalized by Bollywood portrayals of these villainous characters.