What are RBI’s New Rules For Loan Defaulters?

The Reserve Bank of India has laid down rules for banks on all fronts. While on one hand, our central bank keeps the banks in control so as the banking customers are able to get good services, on the other hand, the RBI has also come up with a new set of rules to help banks in the recovery of bad loans. We all have seen how the loans and credit facilities have been used and abused by the borrowers. This has led to mounting NPAs and high losses reflecting on the banks’ books.

The Reserve Bank of India through its notification has implemented a new set of norms. These norms will help the banks in the collection and resolution of the stressed portfolio at a much higher speed. The estimated figure of the non-performing assets stands at about Rs 10 trillion. By any standard this is exorbitant and the new norms will aid the recovery process. While the default on repayment leads to plummeting of credit score, many norms were introduced in past as well to help the borrower to repay the loans. But due to the lack of any time binding on the resolution, the lending institutions were facing a huge challenge.

A host of norms like SDR (strategic debt reconstruction), S4A (sustainable structuring of stressed assets), and similar other policies were withdrawn, to begin with. As per the new set of rules, the lenders will have to implement a resolution plan within 180 days for accounts going delinquent. This means that the restructuring will also need to be followed upon by collections. In the past, despite restructuring the banks were hardly able to get the receivables. But now the new rules give banks the right to proceed with the insolvency and recover the dues. While the RBI gives a tooth to the lending institutions to recover bad loans, there are also some rules so that the banks do not get over aggressive and the people who have had a genuine reason for default are also treated with due restraint. Repossession of property The valuation of property has to have transparency. In case the borrower feels that the security is being undervalued, he can approach the buyers directly for a better price and inform the bank The bank will recover the dues and return the excess amount from the sale proceeds.

It may even recover the recovery expenses. In case the borrower is able to arrange for the outstanding and pays the bank, the banks are obliged to hand over the property. The outstanding could be cleared at any time between the repossession and sale. Recovery agents The banks usually have specialized people who get in touch with defaulting borrowers and initiate recovery. These recovery agents also need to follow a certain set of rules. The banks are required to post the details of the recovery agents on their website The banks need to inform the defaulting borrower on the agent assigned to initiate recovery These recovery agents are also to be authorized by the Indian Institute of Banking and Finance All of them must carry an identity card and authorization letter from the bank The recovery agents have to respect the privacy of the borrower and have to deal with them in a civilized manner The family is to be contacted only in a situation where the borrower is not contactable It is illegal to make the default public. Meaning the information cannot be shared with relatives, co-workers, neighbors, etc.

Irrespective of the rules laid down by the Reserve Bank of India, whether to facilitate a better collection environment for banks or to help borrowers to retain their dignity, it is the rightful obligation of all borrowers to repay the loan in time. Rather than looking for a loan for CIBIL defaulters that may still be out of reach, one has to work on the available funds in a way that the repayment is happening in time. The banks will be more than willing to give an extension of time to the genuine borrowers who show commitment to meet their obligations.

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