Union Finance Minister Nirmala Sitharaman emphasized today that the government has issued clear instructions to both public and private banks to handle the process of loan repayment with humanity and sensitivity. During her intervention in the Lok Sabha’s Question Hour, she addressed concerns related to the repayment of loans taken by small borrowers.
Ms. Sitharaman acknowledged complaints about certain banks following up on loan repayments in a merciless manner. To address this issue, the government has directed all banks, whether public or private, to avoid taking harsh measures during the loan recovery process. Instead, they should approach such cases with compassion and understanding.
This move comes in the context of the Madras High Court’s recent observation, which stated that the recovery of outstanding loan amounts must be done in accordance with established legal procedures. The court also prohibited the use of coercive methods by private agents appointed by banks for loan recovery, stating that banks cannot employ muscle power in these matters.
The Reserve Bank of India (RBI) had issued a circular in 2008 warning banks about the possibility of banning their engagement with recovery agents if complaints against them are received. Subsequently, the RBI has regularly issued circulars aimed at curbing harassment by recovery agents hired by banks and Non-Banking Financial Companies.
The RBI’s vigilance on this matter is evident from its imposition of penalties on institutions found to be non-compliant with directives on loan recovery agents. For instance, RBL Bank Ltd faced a fine of ₹2.27 crore in March of this year due to deficiencies in regulatory compliance related to its recovery agents.
The government’s and RBI’s efforts demonstrate their commitment to ensuring a fair and empathetic approach to loan recovery, providing relief to small borrowers and protecting them from undue coercion
