New recovery norms by RBI

The Reserve Bank of India (RBI) has put out guidelines on the use of recovery agents, after giving banks a notice on its monetary policy statement last month.

It has proposed banks provide borrowers information (including contact details) about recovery agents in advance. It also advised banks against setting stiff recovery targets or offering agents high incentives, which may induce them to use intimidating methods for recovery.

The guidelines also propose that the Indian Banks' Association, together with the Indian Institute of Banking and Finance (IIBF), conduct a certificate course for direct sales associates, marketing associates and recovery agents.

Analysts and bankers fear that loan recovery will take longer and banks could face a rise in defaults, especially banks such as ICICI and Citibank, as these have a large exposure in retail loans.