If a recovery agent knocks at your door you don’t have to hide in your house or avoid them by asking one of your family members to speak to them. They cannot harm you or force you to pay the outstanding at all.
The RBI has issued strict guidelines to protect the interest of the borrower and to stop unethical practices of recovery agents. You will find here the RBI guidelines towards recovery agents: how agents should approach, the time they can visit, and how they should behave.

Approach of Recovery Agents
The RBI states: “To ensure due notice and appropriate authorization by the banks, they should inform the borrower the details of recovery agents engaged for the purpose, while forwarding default cases to the recovery agents. The details should include their telephone numbers, etc. The recovery agents should call the borrowers only from telephone numbers notified to the borrower.”
This clearly indicates that if any recovery agent approaches you without following the above guidelines you should not entertain them and if they try to harass you, you can make a complaint to the police and also to the Banking Ombudsman. The bank also has the responsibility to keep the borrower informed in case the bank has changed the recovery agent. “Where the recovery agency is changed by the bank during the recovery process, in addition to the bank notifying the borrower of the change, the new agent should carry the notice and the authorization letter along with his identity card.” - the RBI guideline states.

Time of Call
The recovery agents are allowed to call the borrower only between 7 am to 7 pm. It’s as per the Code of Bank’s Commitment to Customers which banks have to abide by. In addition, visits are strictly prohibited by the code in the case of bereavement in the family or calamitous occasions - “Inappropriate occasions such as bereavement in the family or other calamitous occasion the family would be avoided for making calls visits to collect dues.”

Behavior of Recovery Agents
The recovery agents are not allowed under any circumstances to thrash the borrower or speak indecently. If the borrower does not to want to speak to the agent, the agents have to obey. “The bank and their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors’ family members, referees and friends, making threatening and anonymous calls or making false and misleading representations.” - states the RBI.

An important point here is to note that in case you have already lodged a complaint for any of your grievances, banks cannot send recovery agents for that specific issue. The RBI states “Where a grievance/complaint has been lodged, banks should not forward cases to recovery agencies till they have finally disposed of any grievance/complaint lodged by the concerned borrower.”

“Defaulter” is a dreaded tag for both the lender and the borrower. Who are the people who default on loans? Why do they take a loan if they can’t afford to repay? How do they get a loan in the first place?

A defaulter can be a salaried or self-employed, middle class individual. Or, a high end customer with residences and offices in prime localities. (There are ample reports to prove this!) Defaulters could belong to any segment of society.

Could it be that defaulters just dupe banks if the outstanding runs into a few lakhs? Well, it could just as well be just a few thousands. Or it could be money taken to buy a new car or a personal loan to invest in a business. The borrower may just choose not to pay.

There could be a few genuine reasons for which a borrower may not be able to repay a loan, momentarily, or at all.

The current market crash and the resulting economic slow down have cost many people their jobs. Deprived of the means to repay, these people may not be able to pay off the loan.

Another reason could be unsound medical condition or ill-health. If an individual is confined to bed for a period of time for medical reasons. Or, is impaired temporarily or forever.

Yet, another could be divorce. It’s common to take a joint loan with a spouse to increase the loan eligibility. And then, one fine day (!), the marriage busts. A study suggests that 11 out of 1, 000 marriages end up in divorce in India. If the separated partner does not have sufficient means, the loan could end up as a default.

And here is something interesting. You can default intentionally too! Yes, despite stringent lending norms, there are borrowers who default intentionally. Here’s how:

Fudging identities and forging documents
A newspaper report talks about Mandeep Singh from Panchkula who applied for a loan of Rs seven lakh for buying a Mahindra Scorpio. Posing as car tool-kits trader, he got the loan. He submitted a photocopy of his PAN card and an income tax return of some town in Himachal Pradesh. It was difficult for verification agency to clearly ascertain the claims. After repaying a couple of installments, it was found that the borrower was a fraud and was untraceable. All the submitted documents were fake.
Another common instance of forgery is that of a bank statement. It has been seen that potential borrowers shows a high account balance till the time the loan is through. Once done, he withdraws the amount. Salary statements and addresses seem to be on the top of the list of forgeries.

Organised rackets
If you have some hands-on experience with dealing in bank loans either as verification or sales agent of loans or credit card sales through telemarketing, you may find the ‘Mr Hyde’ side of your personality planning sinister stuff. All you will need is a set of original documents (anyone’s). Don’t ever trust your friends or an agent so much that you hand over your original documents and forget about them. These documents could be misused.

For some of us, who have seen the recently released movie EMI, newspaper reports about recovery agents may seem to be some sort of a controversy set to malign the profession and the banks involved. ‘Sattar’ in the movie might as well be confused with some angelic figure; falls in love with a debtor, Prerna… bye bye Prerna’s debt…

In real life, recovery gents, the process, and the very fact that you are a defaulter can be a serious pain in the posterior.

How do banks recover loans?
Banks have appointed special recovery agencies for loan recovery. These agencies could be either on contract or commission.
Some banks may start the process of loan recovery after a single defaults, other may wait for at least two such instances. The process begins with calls to the borrower. And, what follows is the field recovery process, which involves face-to-face interaction.

Are there any rules for recovery agents?
We have read countless newspaper reports about how the recovery agents come to a defaulter’s house or office at all god-forsaken hours. A bank’s representative is to contact the borrower between 7 am and 7 pm, unless one needs to visit a borrower at odd hours and occasions such as continuous irregularity in the accounts.
Agents also should avoid making calls or show up to meet the person concerned on inappropriate occasions such as mourning in the family or such other occasions for making calls/visits to collect dues.

The agents are required to carry proper identification and carry the concerned bank’s or agency’s authority letter. The agent should display the letter as and when required.

Before the recovery agent is sent across, the bank needs to have given sufficient notice (as prescribed by law) to the borrower before the filed recovery process is initiated. These are just a few of the guidelines.

Notorious Fame
What is it that the ‘agents’ are famous for?

Most agents are known to threaten people and verbally abuse and threaten the defaulters, despite bank’s directions. Some may threaten or actually use third-degree treatment on the borrowers.

Lucky, a recovery agent from Delhi told CNN-IBN in an interview that some recovery agents not only used lathis for recovery, but also their Mausers. These agents may stop a defaulter’s car on gunpoint and beat him up.

These recovery agents are not on any bank’s rolls but stand to get a hefty cut of booty they help recover.

Another recovery agent decided to take law in his hands and turned robber to recover the loan. In September 2008, in Pune, recovery agent Nitin Narayan Chavan robbed Gita Buremukla (25) of jewelry worth Rs 35,000.

This HSBC Bank recovery agent met Buremukla and informed her that there was a loan outstanding. She informed him that the person who had taken the loan no longer lived on the address, a Mr. K. Rambabu.

That didn’t satisfy the agent. The agent came back the next day to Buremukla’s house and entered it on the pretext of drinking some water. Note, recovery guidelines say that the recovery agent can’t gain forceful entry into a defaulter’s house.

Chavan locked the main door and threatened Gita with a knife and forcibly took her mangalsutra worth Rs 35,000.

I had a problem with Standard Chartered Credit card in 2000. It was a company expense card and had a few issues with payment. Later, I tried to settle the dues with the bank and the collection agent made a receipt of final settlement and promised to give the no dues letter from the bank. However, that letter never came, I had left city/country for some time and this matter was pending. I understand that my name would be in the defaulter’s list and it would be difficult to get another loan /card. How do I re-resolve this issue?