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Banks having to set norms for recovery agents
17 November 2007


Banks and financial institutions have been hesitant to act since these recovery agents reduce the NPA and help in the partial or full recovery of the assets, something that helps the finances of the institution. However, increasing media and public outcry against such practices has forced the RBI to act. For banks, reigning in these recovery agents now seems to be the only measure forward, although banks are not very happy with having to use the legal civil suit method to get back their money; but as I have said before, the slow state of judicial progress in the country is something that banks have to live with, they cannot use force or strong-arm methods just because it is slow. Banks are now being forced to start implementing a set of norms for these recovery agents: "Banks are gearing up to meet the stringent norms on recovery agents that are likely to be laid down by RBI. However, a number of private and foreign banks are also critical of RBI’s decision on action against banks, whose recovery agents’ behaviour is not appropriate. RBI on Tuesday said the regulator would consider imposing a ban on recovery agents, if it is found that they are resorting to abusive practices to recover loan. HDFC Bank chairman Deepak Parekh said RBI’s concern is justified as no society would allow recovery agents to take law in their hands for recovering money. A licensing system could be started to identify good agents and responsibility to recovery dues could be given only to licensed agents, he added. Parekh said banks could outsource the recovery job to only responsible agents. He, however, maintained that HDFC outsources only a small portion of its recovery business to private agency." No matter whether banks like it or not, they cannot be allowed to use illegal means to recover their debts; else what is the difference between them and a strong arm loan shark ? The rule of law has to be applicable on banks; maybe this will make the banks look at using more credit histories to give loans, something that is the hallmark of a more advanced financial system. If such a system comes into place, then it would also mean that people who have good credit histories could eventually start getting beneficial treatment.

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