RBI asks NBFCs not to use coercion during loan recovery


The Reserve Bank of India (RBI) asked NBFCs to ensure that no coercive action is taken against borrowers during recovery of loans by their agents and said senior management will be responsible for breach of norms.

The norms are part of the directions issued by the RBI on ‘Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs (Non-Banking Financial Companies)’.

As per the directions, the outsourcing of any activity by NBFC does not diminish its obligations, and those of its Board and senior management, who have the “ultimate responsibility” for the outsourced activity.

“NBFCs would, therefore, be responsible for the actions of their service provider including Direct Sales Agents/ Direct Marketing Agents and recovery agents…,” it said.
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It further said NBFCs and their agents should not resort to “intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts”.

Intimidation or harassment include “acts intended to humiliate publicly or intrude the privacy” of the debtors’ family members, referees and friends, making threatening and anonymous calls or making false and misleading representations.

It further said NBFCs cannot outsource core management functions including internal audit, strategic and compliance functions and decision-making functions such as determining compliance with KYC norms and management of investment portfolio.

The directions on outsourcing also said NBFCs should constitute grievance redressal machinery.

NBFCs have also been asked to conduct a self-assessment of their existing outsourcing arrangements and bring them in line with the directions within two months.