Difficult for financial institutions to lend if collection agencies are not allowed, says former finance secretary


The Reserve Bank of India has prohibited Mahindra Finance from employing the services of third party agents for any recovery or repossession until further notice.

The crackdown comes after the tragic incident in Hazaribagh in which a 27-year-old pregnant woman was crushed to death under the wheels of a vehicle driven by a Mahindra Finance recovery worker. The incident also shone a spotlight on the behavior of recovery agents.

TT Srinivasraghavan, former Managing Director of Sundaram Finance, said most Non-Banking Financial Companies (NBFCs) have very detailed contracts they sign with debt collectors, in which they clearly spell out what can and cannot be done. “So in terms of what’s out there, in terms of the framework, I don’t think there’s much more than needs to be done,” he said.

He said there is a well-articulated system in terms of the practices to follow, in terms of recovery and repossession.

If collection agencies are not allowed, it would be very difficult for any financial institution to lend, said former finance secretary DK Mittal. “It’s a standard process. So what needs to be done is to make sure that the person involved is prevented from participating in any collection process at any financial institution. So they are heavily punished and the banks and agency that are doing so should be penalized to pay damages to the person whose family member died,” he said.

Srinivasraghavan said NBFCs lack options when it comes to asset recovery. “If you look at the remedies available to lenders in general – NBFCs in particular – more and more, there are more and more impediments preventing NBFCs from recovering their loans. In arbitration, the Supreme Court recently ruled that the old arbitration clauses are no longer valid, they’ve made it a bit more complicated, so if you look at the avenues open to lenders, to get their rights back in a legitimate way, they’ve been more and more hindered,” he said.

He believes that for incidents such as Hazaribagh to be avoided, the whole system, both legal and regulatory, must examine ways in which lenders have better recourse for their primary security. “In asset finance, lenders rely primarily on the asset. So if there is a default, the only recourse available to them is to take back their asset, try to get rid of it and salvage what they can,” he said.

Srinivasraghavan said if due process was followed, the right to recover is well within reach of the lender. “It’s an inherent right, which the lender has. Of course, due process has to be followed, notice has to be served – it’s all clearly spelled out, spelled out. But due process was followed. The right to repossess possession is something that is inherent in every lender’s agreement, and it should be that way,” he said.


cnbctv18-forexlive-benzinga -Sp

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button