Digital loan apps or digital lenders must convey the details of recovery agents to borrowers in case of default of loan, the Reserve Bank of India (RBI) said on Tuesday. RBI also asked the entities to intimate the names of of their empanelled agents to customers before initiating the recovery process.
The central bank in an FAQ on digital lending guidelines said, "At the time of sanction of loan, the borrower may be conveyed the name of empaneled agents authorized to contact the borrower in case of loan default. However, if the loan turns delinquent and the recovery agent has been assigned to the borrower, the particulars of such recovery agent assigned must be communicated to the borrower through email/SMS before the recovery agent contacts the borrower for recovery."
RBI's mandate comes at a time when there has been a rise in cases of recovery agents harassing borrowers to get their money back.
RBI said in case of delinquent loans, registered entities (REs) can deploy a physical interface to recover loans in cash, where absolutely necessary. In order to afford operational flexibility to registered entities, such transactions are exempted from the requirement of direct repayment of loans in the registered entities' bank accounts.
"Any recovery by cash should be duly reflected in the borrower’s account and REs shall ensure that any fees, charges, etc., payable to LSPs are paid directly by them (REs) and are not charged by LSP to the borrower directly or indirectly from the recovery proceeds,” the RBI further said.
In August last year, the RBI had tightened norms for digital lending to prevent charging of exorbitant interest rates by certain entities and also check unethical loan recovery practices.
“These instructions will be applicable to all Commercial Banks (including Regional Rural Banks), Co-operative Banks, Non-Banking Financial Companies (NBFCs), Asset Reconstruction Companies (ARCs) and All India Financial Institutions," the RBI said in a release on August 12, 2022.