The Criminalization of the Recovery Process

Of late there have been number of cases where banks (mostly foreign ones) have been involved in the process of recovery of assets from its own customers using brute force. Such incidents thought to be done at the behest of the banks management are increasingly turning out to be a matter of personal greed of the people managing the recovery process.

For starters, these banks do not follow stringent rules for lending money. Advertisements appear around the town asking people to just walk in and walk out with ready approved loans. These loans are classified under small ticket / open market loans. Also these loans are offered as free of any collateral security and not requiring much paperwork. The need for a guarantor is also waived off. Thus these offers become honey traps for gullible low income masses. It is common to see people waiting outside these loan shops in a queues. Banks sanctioning these loans follow all sorts of dubious methods and more often than not lead the poor borrower up a dangerous path of financial destruction.

Loans are sanctioned after deliberate delay thus raising the anxiety level of the borrower. He is told a particular rate of interest and charged another. Many a times the loan is promised on interest calculated on a monthly reducing method, but the loan is sanctioned on interest calculated on flat rate. This raises the cost of borrowing to twice the normal cost of interest. There have been many cases where a person has borrowed a sum of 18000 and has received just 16000 after deduction of processing fees and has had to pay interest to the extent of 18000 over a period of 30 months. Very cleverly, the banks hide the method of charging of interest and often charge up to 60% interest per annum.

These banks thus show scant regard to laws enacted for controlling interest by most of the states of the union. For example, Maharashtra Money Lenders Act prohibits interest rates in excess of 18% per annum compounded annually. As these banks are working under the control of RBI and conveniently state that they are governed by the Banking Regulations Act thus they do not come under the control of the state laws. They thus charge up to 5% interest compounded monthly leading to exploitation of people at large. It is indeed a shame that the government of Maharashtra has chosen to ignore violation of its own law and allowed these banks to exploit its constituents so brazenly.

Banks have also shifted their focus on small and marginal borrowers. Typical loans are in the region of 10,000 to 2 Lacs. Interest charged is in the range of 48% to 60% per annum and as the borrower is some one who is in dire need of money. On default, banks often browbeat the borrower into submission by using illegal methods of recovery including deploying the service of goons.

It is here that the criminalization of recovery process has crept into the system. People responsible for recovery of loans secured with some asset such as a vehicle take forceful possession of the asset and dispose of the same at a highly discounted price to people who they get kickbacks from. Bad loans are hawked to recovery agencies at a discount and often the agency that offers most kickbacks is the one to secure most of the recovery business.

Sale of assets is in clear violation of RBI directive that state that the asset should first be offered, at the sale price determined by the bank, to the original asset holder. As the asset is sold at a discount, the bank then continues to recover the shortfall in the sale price from the poor borrower and his guarantors leading to a double whammy. On the one hand the borrower is deprived of his asset and on the other he has to fulfill the shortfall created due to the greed of the people involved in the recovery process.

We have come across thousands of such cases where the original owner has been deprived of his precious asset at a sale price much below the market rate and the balance has been recovered by the bank by selling off more assets of the borrower.

It is high time that the state’s criminal investigation department takes up an independent probe into the working of the recovery departments of these banks and in specific find out about the personal finances of the people who are working in the recovery departments of these banks. I am sure that there will be a clear mismatch of their assets and their known sources of income. The state also needs to wake up to the menace of unregulated loans that threaten to tear the social fabric of the state and is sure to lead to suicides amongst small and marginal borrowers who unable to face the society for defaults of such petty amounts will have no other recourse left to them but to end their lives.

Vijay Kamble
President
Credit Consumers Association of India