RBI directs Mahindra Finance to halt recovery via third parties

The Reserve Bank of India (RBI) on Thursday directed Mahindra Finance to immediately halt recovery of loans and repossession activity through third-party agents.

The regulatory action comes in the wake of an incident in Hazaribagh, Jharkhand, where a recovery agent working on behalf of the non-banking financial company (NBFC) allegedly ran over a pregnant woman during the confiscation of her family’s tractor.

The NBFC has been allowed to continue recovery or repossession activities through its own employees. The central bank said the action is based on certain material supervisory concerns observed in the company with regard to the management of its outsourcing activities.

The Reserve Bank of India has today, in exercise of its powers under section 45L (1)(b) of the Reserve Bank of India Act, 1934, directed Mahindra & Mahindra Financial Services Ltd. (MMFSL), Mumbai, to immediately cease carrying out any recovery or repossession activity through outsourcing arrangements, till further orders,” the regulator said in a release.

RBI has a code in place mandating that lenders must not resort to undue harassment, persistently bother borrowers at odd hours or use muscle power for recovery of loans. The regulator’s fair practices code explicitly states that complaints from customers also include rude behaviour from the staff of the companies. Therefore, NBFCs must ensure that the staff are adequately trained to deal with the customers in an appropriate manner.

Despite that, the incidence of harassment and abuse for recovery of loans, many of them given by digital lenders, rose significantly in the wake of the Covid outbreak.

Following increased complaints, RBI in 2020 issued a circular telling all lenders regulated by it to list the names of their digital app partners on their website. One of the aims of the regulator’s guidelines for digital lending, issued on August 10 this year, is to check the unbridled engagement of third parties by regulated entities.

The working group on digital lending in its report recommended laying down a code of conduct for recovery agents and putting names of the erring members in a negative or grey list for the sector by self-regulatory organisations after following appropriate procedure

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