Loan recovery agents representing banks turning up at the doorstep is a dreadful site many Indians have had to endure, since their tactics are also known to escalate into violence. Last year, an incident where a loan recovery agent for Mahindra ran over a woman with a tractor, raised serious questions about loan recovery methods. With several incidents of people being driven to suicide by intimidation of recovery agents, the Reserve Bank of India also stepped in.
Now the RBI has issued guidelines to make online loans more seamless and secure, for which it has instructed lenders to provide details of recovery agents to borrowers. In case a person defaults on loan repayment, the bank is required to provide the names and other details of recovery agents, before they come knocking on the door. These agents assigned by the bank alone are allowed to contact the borrower, and credit card payments won't be covered under these norms.
Apart from that, a loan by online platforms will still be considered digital lending, despite the involvement of a physical mechanism. Those who facilitate such kind of e-loans, will be designated Lending Services Providers (LSPs).
Another important guideline is that the LSPs cannot control funds flowing between the borrower's account and the lenders. Payment Aggregators who are playing the role of LSPs by facilitating loans, should also refrain from handling cashflow between borrowers and lenders.
The processing fee can be retained if the customer exits the loan in a cooling off period, but they need to be informed about it.
