Loan default is not the end!

Photo credits: familymwr

 BB :27Jul 2013 

In case of housing loans, banks have a provision for restructuring the loan e.g. terms of extending the tenure of the loan. For the same, the bank must perceive the reason of default to be genuine.

 The Reserve Bank of India (RBI) has issued guidelines on the same. For. e.g. the loan tenure can be increased by not more than 1 year in most cases. Foreclosure by selling the collaterals with the borrower’s co-operation is also advised as the next step.

Owning a house or a car is a dream come true for many because of the availability of loans. In the last few years with an increase in standard of living particularly in the metros, the once conservative and loan averse investor is now willing take on loan commitments to satisfy even leisure requirements.

Taking a loan has an impact on your cash flows by way of EMI payments. What happens to all your loan commitments, if you have lost your job or are entangled in a debt trap because of too many commitments?  Default becomes imminent. A default occurs when a customer repeatedly fails to make payments to the lender as per the schedule outlined by the lender at the time of giving the loan.

Does a default mean that you need to give up ownership of the asset for which the loan was taken?

When you find that you are in a situation where you will not be able to meet your loan obligations, running away from the lender is the last thing you should do. Banks/lending institutions understand that there could be genuine reasons for which the borrower is unable to make timely payments such as loss of job, or an accident that may have confined the borrower to the bed. This is especially true if you have always paid your EMIs on time, every time before events took an unfortunate turn.

You need to engage in a dialogue with the bank/financial institution. Based on how genuine your intent and case is, the bank may look for various feasible solutions that is mutually acceptable. The borrower will benefit because he will be able to retain his asset and the bank will also benefit because this agreement will prevent an addition to its NPA portfolio.

The various options that can be worked out include:

• Reschedule your debt: After having analyzed your financial position, if the bank feels that the quantum of EMI is what is troubling you, they may be willing to reschedule your debt by extending the loan tenure. That will bring down the monthly EMI commitment, though it will mean more interest outgo in the long term. However, you should consider the immediate relief it can bring to your current situation. When the tide turns and you are facing better times you can try negotiating with your bank and revert to your old or higher EMI or even prepay your loan, closing it early and saving excessive interest outgo if it makes sense post the pre-payment penalty.

• Deferring the payment: If your financial situation is such that there is likely to be a jump in cash flow going forward because of change in job or any other reason, you may seek temporary relief from the bank for a few months. The bank may permit the same but may charge penalty for not paying within the time frames agreed upon earlier.

• Restructuring the loan: In case of housing loans, banks have a provision for restructuring the loan e.g. terms of extending the tenure of the loan. For the same, the bank must perceive the reason of default to be genuine. The Reserve Bank of India (RBI) has issued guidelines on the same. For. e.g. the loan tenure can be increased by not more than 1 year in most cases. Foreclosure by selling the collaterals with the borrower’s co-operation is also advised as the next step.

• One time settlement: If you express your desire to pay back, and make known to the bank your current financial condition, banks may be willing to enter into a one time settlement on a case to case basis. This is a good way to get rid of your loan if you have some money as usually the settlement will be done at a lesser value i.e. the bank may waive off some amount/charges. If your financial situation is really bad, then you may need to file for bankruptcy to free yourself from the loan commitment.

• Conversion of loan in case of unsecured loans: Banks tend to be stricter as far as unsecured loans are concerned. The borrower could opt for converting the unsecured loan to a secured one by offering a security. That should bring down the rate of interest and thus the EMI burden.

Running away from the problem is not the solution. Not only will you undergo emotional stress, you will also end up losing your asset. What is important is that your intent to pay off the loan should be evident to the lender. It is in the banks interest too, to ensure that the loan doesn’t turn bad. So be wise and engage in a dialogue with the bank the moment you figure out that you will not be able to meet obligations and don’t wait till the last moment. That should help you tide over the temporary crisis you could find yourself in.

What happens if none of the above options work out?

If none of the above options work, the bank after giving you time for repayment will go in for repossession of the asset for the purpose of recovery of dues.

Movable asset (Car/Auto)

• Borrower will be given a notice of 7-15 days to pay the dues before the repossession of the Vehicle. In case of non payment within this notice period, the Bank will repossess the pledged vehicle..
• After repossession of the vehicle, a Pre-Sale Notice would be issued to the borrower giving him a time line of 7 days to make payment of the outstanding dues. The Pre Sale Notice would clearly mention the details of the concerned office and the corresponding contact person for payment and release of vehicle.
• In case the borrower makes the payment in accordance with the agreed terms of settlement, the vehicle will be released back to the borrower within 7 days from the realization of the payment.
• The vehicle will be sold by way of auction through dealers empaneled with the bank within 90 days from the date of repossession.

Immovable Asset (House/property/land)

A notice will be sent to the borrower u/s 13(2) of the SARFAESI Act. This can be done only after the loan is classified as NPA as per the guidelines set by RBI

• The customer will be allowed 60 days post issuance of the notice to regularize the account or come forward to settle the account. .
• If the borrower refuses to pay, then the authorized officer will ask for the physical possession of the mortgaged property by handing over the demand possession notice to the borrower
• The Bank shall proceed with the auction of the attached property post 30 days of taking possession of the property, in the event, that the customer does not come forward and settle the loan. The Bank shall send the customer a letter intimating him, of the venue of the sale indicating date and time of the same.
• The bank will consider handing over possession of property to the borrower any time after repossession and before concluding sale transaction of the property, provided the bank dues are cleared in full.

Any excess amount obtained after adjusting the dues on the loan will be refunded to the borrower.

Borrower’s rights

The SARFAESI act gives the customer the right to appeal against the action of repossession taken by the bank in the Debt Recovery Tribunal u/s 17 within 45 days from the date when the action was taken. If the DRT passes an order against the borrower, then an appeal can be filed before the Appellate Tribunal within 30 days of receiving it. If it is held in appeal that the possession of the asset taken by the secured creditor was wrongful, the Tribunal or the Appellate Tribunal may direct its return to the borrower, along with appropriate compensation and cost.

Loan default can have serious consequences. Not only could it result in seizure and auction of your assets, but your credit score too will take a beating. Even rescheduling debt tarnishes your credit history to an extent and will reflect in your credit score. Obtaining a loan in the future will become an issue which is a huge financial setback. Make sure you take a loan only if you’re sure of timely repayment. A good way to do this is to ascertain your personal net worth in terms of assets you own and the money you have at your disposal after taking stock of your existing debts and other financial commitments.

SC bench headed by new CJI slams decision of just-retired CJI Kabir

A PTI file photo of outgoing Chief Justice of India Altamas Kabir with Chief Justice of India (designate) P Sathasivam at a function to bid farewell to the former.

Dhananjay Mahapatra, TNN | Jul 25, 2013, 05.55 AM IST

NEW DELHI: In an unprecedented development, a bench headed by Chief Justice P Sathasivam strongly disapproved of a series of orders passed by a bench headed by his immediate predecessor Altamas Kabir granting relief to Jaiprakash Associates Ltd (JAL) by virtually sitting in appeal over the order of another bench of the apex court which had declined to give concession to the construction and infrastructure group.

The orders passed by the bench headed by the ex-CJI helped the company dodge depositing Rs 100 crore as penalty that Himachal Pradesh high court had slapped on it in May last year for misrepresenting facts for securing clearances to set up a cement plant.

While an SC bench headed by Justice A K Patnaik in November last year refused to stay the HC order and asked the company to meet the deadline for depositing the penalty, the bench led by ex-CJI Kabir passed orders enabling the company to defer paying the fine, before staying the HC order.

"We do not approve of the manner in which the interim orders came to be passed. We do not sit on appeal over orders passed by a coordinate bench. These orders should not have been passed," a bench of CJI Sathasivam and Justice Ranjan Gogoi said on Wednesday as it rejected JAL's plea for extension of deadline for payment of Rs 25 crore as this year's installment for the Rs 100 crore penalty.

Despite senior advocate A M Singhvi making attempts to defend JAL, the bench of Justices Sathasivam and Gogoi made no secret of its strong displeasure over the manner in which the matter had been taken up and interim orders passed, which were in direct conflict with earlier orders of the apex court.

"We are clear in our mind about what has happened," the bench said when Singhvi alleged that Sanjay Parikh, the counsel for the NGO which challenged JAL's cement plant, was trying to confuse the matter by referring to different orders.

Appearing before Justices Sathasivam and Gogoi, Parikh narrated the sequence of orders and wondered whether the ex-CJI headed benches could have sat in appeal over the orders passed by a coordinate bench.



On May 4 last year, Himachal Pradesh HC slapped a fine of Rs 100 crore on JAL for misrepresenting facts to obtain statutory permissions, including environment clearances, for setting up a cement plant. Applying the 'polluter pays principle', the HC bench of Justices Deepak Gupta and Sanjay Karol had asked JAL to pay the fine in yearly installments of Rs 25 crore each on August 31, 2012; March 31, 2013; March 31, 2014 and March 31, 2015.

The company had challenged the decision in the Supreme Court. JAL's appeal was heard by a bench headed by Justice A K Patnaik, which on November 26 last year admitted the appeal but rejected the request for a stay of the HC judgment. 

The Justice Patnaik-headed bench said in its order, "On the prayer for stay of the damages of Rs 100 crore ordered by the high court, we are not inclined to grant stay of the said order. The petitioner is, therefore, directed to deposit the damages in installments as per the impugned order of the high court. We, however, direct that the damages deposited by the petitioner will remain with the state and will not be disbursed during the pendency of the appeals."

On February 4 this year, the matter was listed for the first time before a bench headed by then CJI Altamas Kabir and comprising Justices A R Dave and Vikramjit Sen. The bench in its order said, "Having regard to the very frank submissions made on behalf of the petitioner regarding its incapacity to deposit the penalty amount, out of which one installment has already been deposited, let this matter be listed for final disposal on March 12."

On March 12, it was adjourned to March 19 and then to March 20, when a bench of Justices Kabir, Dave and Ranjana P Desai said, "Since this adjournment is being given at the instance of the state of Himachal Pradesh, the time granted by the high court to deposit Rs 25 crore within March 31, 2013 shall stand extended till April 20, 2013."

On April 17, the bench of Justices Kabir, Dave and Sen read the order extending payment deadline to April 20 as an interim order and continued it till May 8. On May 8, the bench of Justices Kabir, Dave and S A Bobde adjourned hearing till second week of July and read the interim order as a stay and clarified that such a stay would continue till then.

Just a week before retirement, Justice Kabir, who headed a bench comprising Justices S S Nijjar and J Chelameswar, on July 10 cited paucity of time for its inability to take up the matter and adjourned hearing on JAL's petition till July 23 but added that "till then the payment of installment shall continue to be deferred".

Friend of the court

Rajeev BhattHowever heinous the crime, the accused has a right to legal representation.

 Here, V.K. Anand, lawyer for the chief accused in the Delhi gang-rape case.

FL: Gopal Subramanium :July26,2013

The courts are obliged to do justice in individual cases and must deal with the inability of the accused to engage a lawyer when no lawyer is willing to appear for him/her. 

Thus, the resort by the court to a friend, amicus curiae, forms an important pillar of the justice delivery system in the Indian context. 

ARTICLE 39A of the Constitution of India obliges the state to ensure that the legal system promotes justice on the basis of equal opportunity to all citizens, and the state shall, in particular, provide free legal aid to ensure that opportunities for securing justice are not denied to any citizen because of economic or other disability. The right to legal representation has also been read into Article 21 of the Constitution. Thus, the right to legal representation in all cases exists not because the Constitution provides for it, but because it is a fundamental condition for the sustenance of the rule of law, which in turn is a constitutional goal.

We are aware that in certain cases involving heinous crimes, the concept of “fair trial” becomes more nuanced than we can ever imagine. In addition to the widespread “trial by the media”, there is also immense societal pressure that may abridge the right of the accused to be treated fairly and with dignity during the trial (or even after that). It may also prejudice the investigator who may be motivated by the feeling of being “answerable” to society rather than being responsible to the Constitution. Likewise, at every stage, there may be factors posing challenges to the fairness of the trial. The reason why “fairness of a trial”, irrespective of the nature of the offence, is of extreme importance is that it is one of the basic judicial guarantees entrenched in the concept of the rule of law, and failure to ensure fair trial is reflective of failure of the Constitution. Even if a person has committed a crime, which may be heinous in nature, it is a requirement under the ideals protected by constitutionalism that there should be a trial where the person has full opportunity to satisfy the court of his or her innocence.

Such a right is equally available in so-called “open and shut” cases. In fact, it is in “open and shut” cases that in addition to the accused being tried, democracy and the values of the Constitution are put to test. Reactions by bar associations making it difficult for the accused to get legal assistance after gruesome incidents such as the Parliament House attack, the 26/11 attack, or the Nirbhaya case, have all compelled the courts to crystallise a new jurisprudence.

Bar associations in India have been torch-bearers in the movement for upholding, maintaining and strengthening constitutional values. In 1951, the Supreme Court Bar Association expressed its opposition to the first Constitutional amendments by which fundamental rights were sought to be abridged. In December 1962, the media reported the government’s attempt to combine the offices of the Attorney General of India and the Law Minister on the grounds that the idea of having separate offices of the Attorney General and the Law Minister was a “relic of the British days”, that it involved “divided responsibility in respect of legal advice”.

The move by the government was resisted by bar associations across the country. During the tenure of Indira Gandhi as Prime Minister, the supersession of three senior judges of the Supreme Court was strongly opposed by most bar associations.

The words of Justice V.R. Krishna Iyer (“A judge is a leader whether he wants to be or not. He cannot escape responsibility in his jurisdiction for setting the level of the administration of justice…”) have been put into action by the Supreme Court by making a trial judge responsible for ensuring that the fairness of trial is not vitiated on account of insufficient or inadequate legal representation. The responsibility of ensuring fair trial is also shared by lawyers, individually, and also collectively through their professional associations. It is neither feasible nor proper to allocate the full responsibility of ensuring fair trial to any single actor, and the responsibility is shared, albeit in various proportions, by various actors including the judges and the client. To deal with the situation where the accused does not get adequate representation, the courts have now begun to appoint an “amicus curiae”.

History demonstrates that bar associations in India have played a significant role in upholding the rule of law and in resisting any attempt by the government or any other body to fetter either the judiciary or the bar. Attempts to scuttle the independence of the legal profession have been resisted by the bar. In the light of long traditions, while contemporary developments of passing resolutions to disallow its members from defending those accused of heinous crimes pose a challenge to the rule of law, I am firmly of the view that these challenges are momentary and that the Indian legal profession will strengthen itself over time.

Under Article 51(c) of the Constitution, Indian courts are also required to adhere to and promote Principle 1 of the United Nations Basic Principles on Role of Lawyers, which states that “all persons are entitled to call upon the assistance of a lawyer of their choice to protect and establish their rights and to defend them in all stages of criminal proceedings”. A logical corollary of incorporating these provisions into our domestic law is an obligation cast on every lawyer, by virtue of his/her profession, to represent accused persons irrespective of the nature of the offence involved. Such a right forms the cornerstone of fair trial because it ensures that adequate and fair facilities are available for the preparation of defence. Owing to the organised nature of the profession and the overwhelming control of the leaders of the bar on the members of the associations, it is the duty of those leaders to constantly remind the members of the foundational values of the legal profession, including the independence of the legal profession as well as of the individual lawyer.

A lawyer cannot refuse brief 

In A.S. Mohammed Rafi vs State of Tamil Nadu (2011), Justice Markandey Katju observed that it was a disgrace that lawyers and their associations were passing resolutions against appearing for certain accused and that professional ethics required that a lawyer did not refuse a brief, provided a client was willing to pay his fee and the lawyer was not otherwise engaged. The legal profession works on the ideal that none should be condemned without sufficient evidence in a fair trial conducted after following due procedure, and an advocate is duty bound to ensure that this principle is complied with at all times. Veiled as camaraderie and unity of the legal profession, it is possible that an advocate or a group of advocates is able to influence the views of another advocate or a group of advocates so much so that, unknowingly, the independence of the legal profession may be compromised.

Service of amicus curiae non-expendable

Traditionally, the assistance of an amicus curiae was required to provide his or her dispassionate opinion as well as an objective analysis to the court acting as an outsider or as an independent person. sHowever, such expectation of a dispassionate assistance was absent in criminal cases where the lawyer was typically appointed by the court to defend the accused who could not afford a lawyer. Services of an amicus became extremely important and in a certain sense non-expendable in a democracy like India where a large number of people are unable to approach the courts either on account of economic or social impoverishment or inherent or forced disarticulation.

While the jurisprudence of legal aid and that pertaining to amicus curiae seem to have developed in respect of disarticulated and impoverished litigants, in my assessment, until recently India had not faced a situation where the court had to appoint counsel because lawyers had resolved not to appear for the accused. The courts are, on the one hand, faced with the obligation to do justice in individual cases and, on the other hand, with the inability of the accused to engage a lawyer for himself/herself as no lawyer is willing to appear for him/her. Thus, the resort by the court to a friend—amicus curiae—forms an important pillar in the access to justice in the Indian context.

Keeping in mind the above, the appointment of a lawyer to defend the accused in a criminal trial and calling that lawyer an amicus curiae is actually a progressive development. It can safely be said that in the Indian context, amicus has actually proved to be the true friend of the court—and of constitutionalism. With the help of amicus curiae, the court was able to ensure that the trials in Afzal Guru’s case and in Ajmal Kasab’s case were fair. The duty of a lawyer is to the court, where the Constitution reigns supreme and it is the collaborative duty of all the actors in a courtroom to protect the spirit and faith of the Constitution. While, passing resolutions or otherwise preventing lawyers from appearing for the accused either in heinous crimes or in petty offences is deplorable, I find great satisfaction in the fact that the court has developed the institution of amicus curiae to ensure that the rule of law and the values of the Constitution are not overridden by emotions.

(This article is excerpted from the author's talk at the 8th Annual IBA Bar Leaders’ Conference in Zurich, Switzerland, on May 23 as the Indian Representative.)

Gopal Subramanium is Senior Advocate, Supreme Court of India; former Chairman, Bar Council of India; and former Solicitor General of India.

LATEST COMMENTS:

 No doubt that the article throws enough light on the importance of
amicus curiae in the legal system(especially in India).But the need of
the hour is such a judicial activism in India that the seekers of
justice don't have to run from pillar to post for judicial
representation.The present seekers of justice,at present,are afraid of
our cumbersome judiciary and vortex-like situation which sucks life out
of an individual seeking representation.Why are not there lawyers who
approach poor people in need of judicial representation on their own?

from: SATISH KUMAR TIRKEY

Jul 12, 2013 at 17:21 IST

Self-made man

 

V. SudershanJustice P. Sathasivam.

Front Line :v venkateasan:23 July2013

Justice P. Sathasivam, the 40th Chief Justice of India, is seen as an interactive and responsive judge.

KADAPPANALLUR in Bhavani taluk of Erode district in Tamil Nadu is an obscure village by any standards. With 2,458 people and 643 households, this predominantly agricultural village would have continued to remain in obscurity but for Palanisamy Sathasivam, its first law graduate. On June 29, Sathasivam made his village and the State proud when President Pranab Mukherjee appointed him the next Chief Justice of India (CJI). Justice Sathasivam, to be sworn in on July 19, will be the 40th CJI and the first from Tamil Nadu.

Born on April 27, 1949, in an agricultural family, Sathasivam was also the first graduate in his family. He enrolled as an advocate after completing his law degree at the Madras Law College on July 25, 1973. After a successful legal practice involving all types of writ, civil and criminal matters, on both original and appellate sides of the Madras High Court, he worked as the Tamil Nadu government’s advocate, additional and special government pleader in the Madras High Court. In 1996, at the age of 47, he became a permanent judge of the Madras High Court. After a brief stint in the Punjab and Haryana High Court in 2007, he was elevated to the Supreme Court on August 21 that year. His tenure as the CJI will last up to April 27 next year, when he will retire at the age of 65.

Justice Sathasivam’s rise in the legal profession is significant because, unlike most of his contemporaries, he did not have the advantage of hailing from a family with a legal background.

A self-made man, Justice Sathasivam acquired the image of a neutral judge even after working as a government pleader. Lawyers consider him administratively sound and hard-working and a predictable judge. Indeed, it is this certainty in law and his predictable interpretations that have endeared him to the Bar. “There are no surprises in his judgments, and this helped him to clear a lot of clutter,” observed a senior advocate of the Supreme Court.

Another senior advocate who has appeared before him in several cases in the Supreme Court said: “He is polite, but firm; he has an earthy common sense, his humility is transparent, and he is prompt in the delivery of judgments. The Bar can look forward to dealing with an interactive and a responsive CJI.”

Justice Sathasivam’s judicial philosophy is humane and tilted in favour of the downtrodden. In cases involving a discretionary choice between life and death sentence, Justice Sathasivam almost always preferred a life sentence, emphasising the rehabilitative potential of the convict.

On other matters, he has been meticulous in his interpretation of the law irrespective of who the litigants are. While this has earned him the image of an impartial and objective judge, his judicial record is not entirely free from controversies.

A case in point is the matter involving the lifting of the ban imposed by the Tamil Nadu government on the release of the film Dam 999, on the specious plea that the film was about the Mullaperiyar dam over which Tamil Nadu and Kerala have serious disputes. Justice Sathasivam refused to consider the legal aspects involved in the challenge to the extension of the ban, saying the court could not ignore people’s sentiments. Had the court considered the film producer’s challenge on the basis of legal precedents, it could have resulted in an order favouring the film’s exhibition and the lifting of the ban, which would have been consistent with the freedom of expression guaranteed by the Constitution.

In the numerous interviews that he gave to the media, Justice Sathasivam has defended the collegium system of appointment to the higher judiciary, which has come under criticism from the Bar and the government for being non-transparent. How the Supreme Court views the government’s efforts to tinker with the process of appointing and disciplining judges through fresh legislation, therefore, will be watched with interest.

The Supreme Court and the entire judicial family in the country can look forward to an eventful period during Justice Sathasivam’s tenure as the CJI.

LATEST COMMENTS:

 

Justice Sathasivam is not the first CJI from tamilnadu. 

Actually that distinction goes to

 M.PATANJLI SASTRI,the second CJI ,

WhO Served from November 7,1951 to January 3,1954.

from: ilavazhagi

Jul 20, 2013 at 20:20 IST

Harassment BY Bank's Recovery Agents

K P Narayana Kumar,ET Bureau | 21 Jul, 2013, 04.31AM IST

Despite RBI guidelines, significant number of banks' recovery agents harass defaulters the age-old way

In mid-June, 82-year-old AL Bhargav got a call at around 10 pm at his Jaipur residence. A gruff voice at the other end of the line asked the whereabouts of his 42-year-old son Anand who had recently taken up a job abroad. "Your son has taken a loan of Rs 5lakh from the bank and run away. Give me his number," said the man who claimed to be a recovery agent with HDFC Bank. When the senior citizen refused to share the number, the recovery agent repeatedly called and threatened him. Bhargav was forced to bear with the abuses silently. 

They are not threatening physical violence any more, but recovery agents appointed by

banks have turned to mental harassment - of not just defaulters but their near and dear ones.

When Anand came to know about the abusive calls, he immediately sent a complaint to the bank. In the letter, he explained that he had been a customer with the bank for over the last decade. The bank had found him credit-worthy enough to sanction multiple loans against his name, which he had been repaying diligently. But in 2012, he was forced to quit his job and after failing at business, he found a job abroad.

According to Anand, he had informed the bank executives concerned about his overseas assignment. He had also sought some time to regularise accounts. Speaking to ET Magazine, Anand said he knows that defaulting on a loan is wrong. "But what could I do once I lost my job? And if the bank wanted to collect on the loan, they should have contacted me directly and not my father," he said.


An HDFC Bank spokesperson maintains the bank is "committed to the highest standards of compliance, corporate governance and ethics, and has in place systems and procedures to ensure that its business is conducted in line with rules and regulations. These procedures are updated regularly in accordance with directives from the regulator."

Public sector banks have come under fire repeatedly for their immodest non-performing assets (NPAs) while private banks have always appeared to be better managed given their mean numbers on bad assets. Most public sector banks in India have an NPA in the range of 4-5 per cent while the top private sector banks range around 1-2 per cent. The ratio which denotes the efficiency of the bank in reducing bad loans is commendable.

However, at a time when economic growth has slowed down, the job market is tight with layoffs not uncommon and salary hikes not matching spiralling inflation, the risk of defaults on retail loans can only rise.

Bleak Job Outlook 

Consider, for instance, two sectors grappling with a slowdown in demand: auto and IT. "Laying off may not have started but recruitments in many companies have been restricted," Sugato Sen, deputy director general of the Society of Indian Automobile Manufacturers had told the media in April. Growth in the auto industry has declined for eight straight months now (till June).

IT industry body Nasscom has, meanwhile, declared that requirement for additional personnel requirement in the sector may shrink by nearly 50,000 in the current fiscal year. At the same time, banks chasing growth are tweaking their loan mix in favour of retail in a bid to rely less on a debt-heavy India Inc.

At HDFC Bank, for instance, the overall loan mix is 54:46 in favour of retail, with retail lending growing 26 per cent — against wholesale lending at 17 per cent — in the first quarter of fiscal 2014 over a year ago, according to a research note put out by Morningstar Equity Research. At Axis Bank Morningstar Equity Research's analyst Suruchi Jain points out that "loan losses [provisions/net loans] also trended higher to 1.8 per cent compared with 1 per cent last year as a result of increasing retail lending — retail loans now account for 29 per cent of all loans compared with 24 per cent in the prior corresponding period [the first quarter of fiscal 2013]." Jain, however, adds that loan provisions will stabilise in the 1.3 per cent-1.5 per cent range in the long run, "as a result of more risky retail loans".

Clearly, one way of mitigating that risk and reducing loan losses is by more efficient — and perhaps more aggressive — follow-up with defaulters of secured (home and auto) and unsecured (credit card and personal) loans.

Abusive Calls 

Cut to Ajay S, a customer with ICICI Bank, whose distant relatives had to deal with abusive calls from recovery agents in early June. Ajay says he had struggled to close a personal loan after he lost his job. The 23-year-old finally did manage to settle it but hardly had he closed out the personal loan when he started getting calls about the dues on his credit card. The youngster told the collection agent that he was not in a position to settle the dues on his card immediately and that he had sought some time from the bank. "This collection agency then started calling up my distant relatives whom they had tracked down, I suspect, using social media. The agency called up my relatives repeatedly and told them that I needed to settle my card dues if they wanted to live in peace," Ajay told ET Magazine. The recovery agent also refused to share details about his agency and only revealed that he worked for ICICI Bank.


Ajay admits that ideally he should not have defaulted on his dues. But he is indignant about the fact that the recovery agent concerned dared to harass his relatives. "Which law allows recovery agents to call up friends and relatives of a debtor without their permission, I wonder," he asks. Ajay (and Anand) isn't the only one asking this question.

Instances of debtors, their family and friends getting threat calls have been reported from multiple locations across India. Consumer forum websites like consumercourt.in and consumerlaw.in are flooded with complaints from defaulters being harassed by recovery agents. Even legal online portal lawyersclub.com has been consulted by distressed defaulters who are unsure about how to handle the stress.

Legal Option  Typically most of these individuals are young professionals in hitherto rapidly growing sectors like IT/BPO who are now grappling with the changed economic realities. The harassment as alleged by a host of defaulters that ET Magazine spoke to is despite the fact that the courts have passed a series of judgements against aggressive recovery agents; and consumer commissions too have pulled up banks in the past for hiring musclemen to carry out their collection. An ICICI Bank spokesperson says the organisation is extremely sensitive to customer complaints. It has a very robust complaint redressal mechanism, wherein complaints are carefully looked into to resolve them appropriately. "The bank has seen a significant reduction in collection and recovery related complaints over the past few years. The bank also follows all relevant laws while implementing its loan recovery process. However, we have observed that in some cases, complaints are being used as an avenue for evasion of outstanding legitimate dues or to negotiate for higher waivers," adds the ICICI Bank spokesperson. Eminent lawyer and an expert on the Indian Constitution, Fali S Nariman, says he is shocked that recovery agents still continue to intimidate customers. Nariman points out that if customers who had taken loans from banks were getting calls which violated the guidelines set by the Reserve Bank of India (RBI) then the affected people should go to court. "Such tactics are not correct. The banks can take legal measures against defaulters if they want to. You cannot have marauders knocking at the door," he says. "Nothing will change unless you fight for it," Nariman adds that the system in India had become perversely tolerant of such practices and that the affected people would have to fight it out if the harassment has to end. "Nothing will change unless you fight for it," says Nariman, urging people to file writ petitions before court stating the reason behind their inability to pay and the nature of harassment they face from recovery agents. The significance of recovery agencies can be gauged from the fact that some of these private banks in the country employ over 1,500 agencies each. ET Magazine tried to reach a couple of agencies that have been accused of harassment, and were taken to court by these customers. However, the proprietors of these agencies refused to discuss the subject. "I have nothing to say on the subject. You must understand that we work for the banks and if you have any questions, you must go to them," said one of them. Rewind to 2007  The RBI had framed guidelines on how debt recovery agencies should approach customers and conduct their business in 2007. Back then, the banks were under tremendous pressure after the media reported extensively about debtors being harassed and physically assaulted by collection agents. In those days, most recovery agents were referred to as "goons". In 2006, for instance, ICICI Bank was fined Rs 55 lakh by the Delhi State Consumer Dispute Redressal Commission after recovery agents attacked a youngster and forcibly took possession of a vehicle. In the years since, banks appear to have taken some steps to stop recovery agents from attacking customers. In recent years, the cases of physical assault of debtors appear to have been significantly reduced; the RBI ombudsman also reports that complaints against recovery agents have dwindled from over 1,600 in 2009 to 459 in 2012. Most recovery agencies have also become more professional given the strict guidelines framed by the RBI. The central bank mandates that a person can be employed as a recovery agent only after he completes 100 hours of training and passes a written exam on debt recovery. However, despite these improvements, a significant number of debtors in the country continue to get abusive calls from recovery agents. Research done by ET Magazine suggests that HDFC Bank, ICICI Bank and Axis Bank — perhaps the three most aggressive banks on the retail front — have been getting the most complaints about abusive calls on portals dedicated to consumer complaints for at least five years now. Complaints against Standard Chartered Bank, Citibank and HSBC Bank for sending collection agencies which violate regulations have also been posted on consumer websites. Standard Chartered Bank and HSBC Bank refused to comment. The spokesperson from Citibank did not send an official quote but insisted over the phone that such complaints have not been reported recently. On many occasions, the banks have also acknowledged these complaints and have replied to these posts stating that these complaints will be inquired into. Insiders in the recovery business say that anyone who has defaulted for more than three months on a loan could end up having to face recovery agents. (Banks classify a loan as an NPA when a borrower fails to make interest or principal payments for 90 days.) At this point, normally, a recovery agency will dutifully call the customer and merely remind him to pay his dues. It is difficult to comprehend whether there is a default threshold for retail loan and credit card customers, crossing which, recovery agents feel free to intimidate people. The United States appears to have paid more attention to the need to protect debtors from unscrupulous collection agents and has in place legislation passed specifically to thwart aggressive debt collectors known as the Fair Debt Collection Practices Act (FDCPA). Since the beginning of the year, the Federal Trade Commission (FTC) has invoked the law and brought 15 enforcement actions against debt collectors. The FTC has also obtained over $56 million collected on judgements during the same period. But in India, where the courts are over-burdened, it appears that many collection agencies prefer the good old ways of the loan shark to squeeze money out of debtors. Credit Card Appetite  Despite these complaints about ill-treatment, the appetite for credit cards continues to be intense in India. A survey conducted by electronic transactions major Atos Worldline India suggests that the credit card segment in India witnessed growth in fiscal 2013 after a four-year period of sluggishness. "Although it is still far from the peak of 2008, there has been an uptick in issuance from both private and public issuers and the base is expected to reach 19 million by the end of this financial year," says the report. It also says that since 2009, credit card spends have grown at a cumulative average rate of 17 per cent. HDFC Bank has reported that the number of credit cards issued by the bank has shot up from 50.5 lakh in 2011 to 64.2 lakh in 2013. These positive numbers are in stark contrast to the tales of defaulters who say they would think twice before signing up for cards or personal loans the next time. Feroze, a customer who had defaulted on a credit card issued by Axis Bank, says a collection agent misbehaved at his office which forced the HR department to issue a warning. "The language [used by the agent] was so filthy that I don't even want to repeat what he said," he says going on to add that the recovery agent called up his mother and told her they would kidnap him unless the dues were cleared. Questions emailed to the corporate communications team at Axis Bank were not replied to. A person who was involved in preparing the syllabus for debt recovery agents at the Indian Institute of Banking and Finance (IIBF) said that when steep collection targets are set by the banks or when the recovery agents are asked to recover from people who have no means of repayment, it is possible that some agencies could still be bending a few rules. "The problem is not with the soldiers [referring to the recovery agents]; it lies elsewhere. The banks need to give incentives to people who collect without breaking the rules," he said. But when asked about the incidents of collection agents threatening people, the banking industry veteran asked: "Is it possible for the banks to simply write off all defaulters?" The HDFC Bank spokesperson lists out some of the actions it undertakes as per the regulator's guidelines. For instance, it ensures that all telecallers and field executives are trained by IIBF and undergo a mandatory DRA certification. "Customers are contacted from 7 am to 7 pm and the same is emphasised to all our vendors. All calls and visits are made to customers at the registered details [numbers and addresses of the customers] with the bank," points out the spokesperson. "Our agreements with external vendors emphasise on compliance with the code of conduct and explicitly cover the bank's expectations of vendors in their interactions with customers both face to face and over the phone." She adds that agency penal action is initiated against the vendor as per internal norms for any violation of policy guidelines. Stringent Monitoring  A person who works closely with the recovery department of a private bank says they stringently monitor EMI repayment of customers. "The moment a debtor fails to make a payment, the system ensures that he gets a call and thereafter the follow-up is quite persistent," said this person who did not wish to be identified. Such follow-ups are regularly conducted from a discreet basement office in Delhi, where a dozen telecallers communicate with field agents on verification rounds around the city. The Matrix Group is a private company that has a credit risk unit as well as a debt recovery team and has been in business for the past 11 years. The Matrix headquarters appears to resemble a traditional BPO. There definitely are no musclemen to be seen at the premises of the agency and all the employees have undergone the mandatory training for recovery agents as well. The head of the company Rajiv Mahajan says that his organisation, which employs 500 people and earned around Rs 8 crore last year, has always tried to maintain standards in debt recovery. "All the conversations between telecallers and debtors are recorded and nobody is allowed to abuse any debtor," he says. Mahajan, who used to be a banker, says that the debt recovery business needs regulation. "There is no homogeneity in this business in India. I have heard of recovery agencies that use tough methods and such instances can damage the reputation of the industry," he says. Matrix rolled out a system of ensuring that they approached concerned courts extensively while sending field personnel to collect on a default or to recover automobiles. Through the issuance of court notices and receiver orders, the agency was able to do its job without leaving room for a showdown between its agents and debtors. Yet, Mahajan says that he has to frequently take field personnel out to dinner or throw parties and organise cricket matches for them to de-stress them after dealing with customers. "Unless the nature of demand changes from banks, the pressure will remain. The quality of effort in collection is a direct function of the sort of demand made by banks," he said. The Solution  Still, there's a glimmer of hope in the form of entrepreneurs who are doing their bit to clean up the recovery business. One such person who spotted an opportunity is 26-yearold Manju Bhatia who has started an all-women debt recovery team. Vasuli, where Bhatia is a joint managing director, employs only women as recovery agents to collect. The agency has collected on debts worth Rs 500 crore under her stewardship. Her story has been captured by Rashmi Bansal in her book on women entrepreneurs titled Follow Every Rainbow (Westland, 2013). Bhatia was almost forced into the business years ago after Vasuli was presented with the tough choice of recovering from a minister. Bhatia was then an employee with the firm, which decided to send her to the minister; she recovered the proceeds without any ado. "That day I learnt something very important. There is a gap between the bank and the customer. It's not like everybody defaults because they don't have the money or they don't want to pay," Bhatia told Bansal. She understood that male recovery agents often find it tough to deal with fraudsters who conveniently file false cases against the collection agents. "I thought why not employ more women as recovery agents. Because any home or office we go to, we get a lot of respect." Now that's food for thought for the recovery business. And for banks. (Names of people mentioned in the story and their place of residence have been changed to protect their identity)