Letter to Governor RBI Shri Y.V. Reddy

31st October 2007.

Mr. V.Y Reddy,
Governor,
Reserve Bank of India,
Mint Road, Fort,
Mumbai 400001


Sub: Your mid-term policy review statement of 2007-2008 with specific observation on recovery methods adopted by banks.

Dear Sir,

First, we wish to place on record our sincerest of thanks for taking notice of the growing menace of recovery agents in your mid-term review of 2007-2008 and issuing a stern warning to the banks advising them to follow laid down procedures for recovery or face serious action from RBI.

We wish to bring to your attention some of the sharp practices followed by these banks under the Open Market Loan schemes which are not regulated by RBI.

• It is a common practice to quote interest rates at monthly reducing method but charge on flat rate basis, thus making these loans twice as expensive.
• It is a common and deceptive practice to lure customers with advertisements saying the loans being offered are without any collateral security and then take blank post dated cheques from the borrower as security for the loan.
• It is a common and deceptive practice to deposit all the cheques thus taken in one go and /or threaten to do so and force the borrower into lengthy litigation under section 108 of Negotiable Instruments Act for bouncing of cheques. ( A non-bailable offence )
• It is a common and deceptive practice to lodge such cases at a remote location with an intent to harass the borrower and force him to pay.
• It is a common and deceptive practice to charge usurious rates of interest to borrowers by not giving loan documents including loan agreement, schedule of payment, etc at the time of soliciting the business of the borrower.

Sir, we request that you take note of these sharp practices of the banks which in the long term have the potential of creating a sub-prime mess in the context of personal, home, consumer and credit card loans in India.

Your positive and affirmative action on our representation will go a long way in providing relief to the poor common people who fall prey to these banks.

Thanking you,
Yours sincerely,
For Credit Consumers Association of India


Vijay Kamble
(President)