Finance Minister Nirmala Sitharaman warns banks to halt ruthless loan recovery methods

Union Finance Minister Nirmala Sitharaman has issued a directive to both public and private banks. 

The instruction emphasizes that banks should refrain from taking harsh measures during the loan repayment process. Instead, they are urged to handle such cases with humanity and sensitivity, offering much-needed relief to borrowers struggling to meet their financial obligations. Addressing the ongoing concerns regarding loan repayment difficulties faced by individuals and businesses, Finance Minister Nirmala Sitharaman asserted that the government is keen on fostering a compassionate approach towards borrowers. The directive comes as the second wave of the pandemic continues to impact the nation's economic landscape.

"I have heard complaints about how mercilessly loan repayments have been followed up by some banks. The government has instructed all banks, both public and private, that harsh steps should not be taken when it comes to the process of loan repayment, and they should approach the matter with humanity and sensitivity in mind," she said.

The Madras High Court expressed its concern over the rising number of suicides among borrowers facing financial distress. "Coercive method of recovery by private agents, if appointed by banks, is not permissible. The banks certainly cannot use muscle power to recover the loan amount," it said,  the court dealt with a case where someone raised concerns about farmers facing forceful actions. It directed the government and RBI to take necessary measures to ensure that banks adopt a compassionate approach in dealing with loan repayment cases, particularly during times of economic difficulties.

The Reserve Bank of India (RBI) called for a balanced approach in dealing with loan repayment cases. The Reserve Bank of India (RBI) warned banks in a circular in 2008 that it might ban them from using recovery agents if complaints are received about their behavior. The RBI has been regularly issuing circulars to prevent harassment by recovery agents hired by banks and Non-Banking Financial Companies (NBFCs). In March this year, the RBI fined RBL Bank Ltd Rs 2.27 crore for not complying with certain directives on loan recovery agents. The central bank has also imposed penalties on several cooperative banks for not following its rules. Last year in August, the RBI issued fresh instructions to recovery agents, prohibiting the intimidation of borrowers and calling them before 8 am and after 7 pm. 

As the nation continues its path towards economic recovery, the directive from Union Finance Minister Nirmala Sitharaman to banks emphasizes the importance of approaching loan repayment cases with compassion and sensitivity. By showing understanding towards borrowers facing financial difficulties, banks can alleviate the burden and contribute to a more resilient and inclusive recovery. This move underscores the government's commitment to prioritizing the well-being of its citizens during these unprecedented times.