Finance Minister Directs Banks To Not Take Harsh Measures For Loan Recovery

The government has told both public and private banks that harsh measures should not be taken when it comes to the process of loan repayment and that they should handle such cases with empathy and sensitivity, according to Union Finance Minister Nirmala Sitharaman.

During the Lok Sabha’s Question Hour, Ms. Sitharaman made a statement in response to a query regarding the repayment of loans obtained by small borrowers.

“I have heard complaints about how mercilessly loan repayments have been followed up by some banks. The government has instructed all banks, both public and private, that harsh steps should not be taken when it comes to the process of loan repayment, and they should approach the matter with humanity and sensitivity in mind,” she said.

Last month, the Madras High Court made the ruling that if banks are required to reclaim unpaid loan amounts, they must do so in accordance with the legal process.

“Coercive method of recovery by private agents, if appointed by banks, is not permissible. The banks certainly cannot use muscle power to recover the loan amount,” it said.

Since then, the central bank has released circulars frequently in an effort to reduce harassment by recovery agents employed by banks and Non-Banking Financial Companies.

RBL Bank Ltd. was fined 2.27 crore rupees by the RBI in March of this year for failing to follow several instructions regarding debt collection agents. In a statement, the RBI noted “deficiencies in regulatory compliance” after reviewing complaints made against the Mumbai-based lender’s collection agents from the fiscal years 2018–19 to 2021–22.

A number of cooperative banks have also received penalties from the central bank for breaking its rules for loan repayment.

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