Outsourcing of loan recovery not stopped but expect entities to be on right side of law: RBI

Mumbai: The Reserve Bank on Friday clarified that it is not against the outsourcing of recovery activities by lenders, but expects them to be undertaken on the "right side of the law".

The central bank last week barred Mahindra and Mahindra Financial Services from engaging third party agents for loan recoveries, after a video of a 27-year-old pregnant lady from Jharkhand's Hazaribagh district allegedly being crushed to death under a tractor driven by recovery agents emerged.

Refering to the action taken against Mahindra Finance, RBI Deputy Governor M K Jain told reporters that it is not intended at taking away the right of regulated entities to pursue for their recovery. "What we expect is that it should be on the right side of the law," he said at the post-policy press conference.

He added that the central bank does not expect the action to have an impact on regulated entities and made it clear that the action was against a specific entity alone.

Guidelines to be followed by regulated entities while they engage in outsourcing of activities were already issued earlier under the fair practices code, and the RBI expects them to come out with a board-approved policies to monitor and supervise the same, Jain said.

Deputy Governor Rajeshwar Rao said a comprehensive circular on outsourcing of financial services and the responsibilities of the recovery agents was issued in August.

Additionally, in the case of Microfinance Institutions, the responsibilities of recovery agents have been specified in master directions, he added.

"Both these instructions (the August circular and MFI master directions) will get integrated and we are coming out with a master direction on guidelines for outsourcing and conduct by financial recovery agencies. that will also come out shortly," he added.