Debt recovery processes followed by Indian Banks

Banks lay down their policy and procedure for collection of past due debts in conformity with the legal and regulatory framework. The banks will in particular, abide by:

  • The Reserve Bank of India(RBI) directives on recovery of debt, including recovery agents engaged by the bank and,
  • The Model Policy on collection of Dues and Repossession of security framed by the Indian Banks’ Association.

A bank will normally incorporate its policy and procedure for debt recovery in the arrangement entered into its recovery agents.  In terms of the recovery management agreed with the bank, the recovery agents should adhere to the policy, procedure, etc. prescribed by the bank.

Debt recovery processes

Debt recovery processes can be typically of following kinds, each involving different procedure:

  • Difficult recovery process where the debtors are not willing to pay and who intentionally resist or avoid recovery efforts:   The recovery agent has to follow special process of recovery against the recalcitrant defaulters, in consultation with the bank.
  • Assets possession process:   If the recalcitrant debtors do not eventually pay the dues, the movable assets charged to the bank by way of hypothecation or pledge, can be possessed by the bank or the recovery agent and thereafter auctioned or otherwise sold to recover the dues.  The detailed procedure for such recovery is discussed later, after explaining the meaning of pledge, hypothecation etc. in another Unit.
  • Legal recovery process: The intervention of the court is required to possess mortgaged immovable property by the or its recovery agent.  Also if the charged assets do not exist, or the debt is unsecured, the debtor will have to be sued for recovery of the dues by the bank/recovery agent.

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