The phrase “Debt Recovery Agent” comprises three terms- Debt, Recovery and Agent. Let us understand the meaning of these terms separately, before we explain the meaning of Debt Recovery Agent.
- Debt: It refers to a sum of money owed by one person or entity (debtor) to another person or entity (creditor). Thus there are two parties to a debt- debtor who receives money by way of a debt; and creditor who lends money to the debtor. To illustrate, if Ram takes a loan of Rs. 3 lacs from a bank for purchasing a car, Ram becomes the debtor (or borrower), the bank is the creditor (or lender) and the loan of Rs. 3 laces is the debt (principal). Ram would be required to repay the loan in equated monthly installment (EMI),comprising the principal and interest, spread over the repayment period of, say, 3 years ( debt tenor).
- Recovery: It means collection or recovery of money from the debtor by, or on behalf of the creditor, after it has become due for payment in accordance with the debt terms agreed between the creditor and the debtor. In the above example, if Ram (debtor) fails to pay the agreed installment (EMI) on the due date, the bank may send him notice to remind him to pay the agreed amount within a stipulated period. If he does not pay even after receiving the notice here that a debt becomes payable by the debtor only on or after the due date, but not before that date. If the debt is not paid on the due date it becomes over due or past due.
- Agent: It is a legal term defined in section 182 of Indian Contract Act as “a person employed to do any act for another or to represent another in dealings with third person”. The person for whom such acts are done, or who is represented, is called the “Principal”. An agent has thus an authority to do acts on behalf of the principal within the limits of the authority and thereby bind the principal for such acts in relation to third parties. There are several kinds of agents e.g. brokers (financial or commodity brokers), auctioneers, insurance agents, estate or property agents, commission agent, selling agents, marketing agents, debt recovery agents.
Debt Recovery Agent may now be defined as a person or entity engaged by a bank for the purpose of collecting specified loans, or advances or other kind of dents from the debtors (or borrowers) in accordance with the specified terms and conditions. In the above examples of the car loan to Ram, if the bank (creditor) engages XY will be called as Debt Recovery Agent of the bank.
Engagement of Debt Recovery Agents
Banks are advised to take into account the following specific considerations while engaging recovery agents:
Agent’ in these guidelines would include agencies engaged by the bank and the agents/ employees of the concerned agencies. Banks should have a due diligence process in place for engagement of recovery agents, which should be so structured to cover, among others, individuals involved in the recovery process. The due diligence process should generally conform to the guidelines issued by RBI on outsourcing of financial services vide circular DBOD.No.BP.40/ 21.04.158/ 2006-07 dated November 3, 2006. Further, banks should ensure that the agents engaged by them in the recovery process carry out verification of the antecedents of their employees, which may include pre-employment police verification, as a matter of abundant caution. Banks may decide the periodicity at which re-verification of antecedents should be resorted to.
To ensure due notice and appropriate authorization, banks should inform the borrower the details of recovery agency firms / companies while forwarding default cases to the recovery agency.
Further, since in some of the cases, the borrower might not have received the details about the recovery agency due to refusal / non-availability / avoidance and to ensure identification, it would be appropriate if the agent also carries a copy of the notice and the authorization letter from the bank along with the identity card issued to him by the bank or the agency firm / company. Further, 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 notice and the authorization letter should, among other details, also include the telephone numbers of the relevant recovery agency. Banks should ensure that there is a tape recording of the content / text of the calls made by recovery agents to the customers, and vice-versa. Banks may take reasonable precaution such as intimating the customer that the conversation is being recorded, etc.
The up to date details of the recovery agency firms / companies engaged by banks may also be posted on the bank’s website. 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. However, where the bank is convinced, with appropriate proof, that the borrower is continuously making frivolous / vexatious complaints, it may continue with the recovery proceedings through the Recovery Agents even if a grievance / complaint is pending with them. In cases where the subject matter of the borrower’s dues might be sub judice, banks should exercise utmost caution, as appropriate, in referring the matter to the recovery agencies, depending on the circumstances.
Debt Recovery Agencies
Debt recovery agents are employed Debt Recovery Agencies who work for banks subject to certain terms and condition. Debt recovery agencies are third-party businesses that collect dues past-dues and other receivable of banks in exchange for a fee. DRAs charge the banks/NBFCs for their services in one of two ways:
- A flat fee and
- A percentage of amounts collected.
Most collection agencies use one of following three methods to collect debts/dues viz.
- Contact and follow up through telephone
- Direct contact by visiting the debtors.
Before the debt recovery agent is given the job, banks begin their work banks issue normal reminders to the borrowers. However it is seen that in the case of retail loans the initial reminders could also begin from the DRA. Typically, collection agencies begin the collection process by sending a demand letter followed by phone calls If these efforts do not result in the payment, it will be followed up and supplemented by visit to customers’ houses to more intensive methods. Besides sending out letters and making phone calls, some recovery agencies also specialize in locating debtors who can no longer be reached at the address or phone number listed on their accounts. Certain act on behalf of banks to collect severely overdue accounts.
Training for Debt Recovery Agents
In terms of our Circular DBOD.NO.BP.40/ 21.04.158/ 2006-07 dated November 3, 2006 on guidelines on managing risks and code of conduct in outsourcing of financial services by banks, banks were advised that they should ensure that, among others, the recovery agents are properly trained to handle with care and sensitivity, their responsibilities, in particular aspects like hours of calling, privacy of customer information etc.
Reserve Bank has requested the Indian Banks’ Association to formulate, in consultation with Indian Institute of Banking and Finance (IIBF), a certificate course for Direct Recovery Agents with minimum 100 hours of training. Once the above course is introduced by IIBF, banks should ensure that over a period of one year all their Recovery Agents undergo the above training and obtain the certificate from the above institute. Further, the service providers engaged by banks should also employ only such personnel who have undergone the above training and obtained the certificate from the IIBF. Keeping in view the fact that a large number of agents throughout the country may have to be trained, other institutes/ bank’s own training colleges may provide the training to the recovery agents by having a tie-up arrangement with Indian Institute of Banking and Finance so that there is uniformity in the standards of training. However, every agent will have to pass the examination conducted by IIBF all over India.
Soft Skills for Debt Recovery
The previous unit focused on the regulatory requirements in debt collection process, including the bank-specific policy and procedure. These requirements are mandatory, but may not automatically lead to full recovery. Success in recovery depends on compliance with the regulatory norms added with collection skills and strategy. Both are complementary to each other. Mere regulatory compliance without collection skills and strategy may not result in recovery. Similarly, collection skills and strategy without regulatory compliance may vitiate recovery atmosphere in the long term.
In the present unit, we would briefly discuss some of the essential skills and strategy that facilitate and improve debt recovery. The objective is limited to acquainting the readers with the meaning and key elements of skills and strategy required in debt recovery. The learning can, and should, be enhanced through detailed discussions in the classroom of a training institute, including role plays by the participants.
1. Communication Skill:
Communication is the process of exchanging information, ideas and thought etc. between at least two persons in order to create a common understanding. In recovery process, communication takes place between the debtor and agent by words, in writing, eye contact or body language (during personal meeting) Communication is of two types:
- Verbal communication by spoken words,
- Non-verbal communication e.g. face language (facial expression, eye contact), voice language (voice tone, voice pitch), and body language (body position, body movement) All or any of these elements of non-verbal language communicate some message (whether intended or unintended by the communicator) to the receiver.
Following are the main principles of effective communication, which could be followed by a recovery agent (communicator) in communication with the debtor (receiver).
- The agent’s language (verbal as well as body language) should be civil and courteous, as per the bank-specific requirement.
- The objective of the communication should be clear.
- The language used should be clear simple and courteous.
- The language used should be easily understood by the receiver.
- The agent should be watchful and sensitive to the receiver’s responses (including his/her body language as mentioned above).
- Make sure that the non-verbal communication (or body language) is not adverse to debtor, though unintentional
Listening is another skill which is recovery in process. A good recovery agent should be a good communicator and a good listener. Listening refers to all the ways in which communication is being received from the other party and includes not only hearing but also facial body expressions, attentiveness or lack of it. Following are the requisites of good listening, which help improve communication and make if effective:
- Hear attentively to what the debtor is saying. One may hear, but not listen, if he/she is distracted or inattentive.
- Lack of listening conveys lack of regard/ respect for the communicator; hence it should be avoided.
- Do not show impatience or haste while listening to the debtor. You may lose some important information the debtor washes to say.
- Do not show anger or disapproval, or other such facial/ body expression, while listening to the debtor’s poit of view.
- Normally, commence speaking only after the other party has finished speaking or making a point. Normally do not interrupt. In other words, interrupt only when absolutely necessary, e.g. when the points being spoken are irrelevant or becoming unduly lengthy or controversial and time is limited or is being exceeded. Also interrupt softly by saying words like “excuse me.”
3. Inter-personal Skill:
Inter-personal skill refers to ‘communication plus’ skill that enhances the relationship and understanding between two or more persons. It thus include communication and listening skills, plus ‘something more’. This ‘something more’ would be explained here. Generally, person relate to each other favorably when they find support to their dignity, self-respect, self-esteem, ideas and values. Establishing good inter-personal relationship with a person means establishing a ‘rapport’ with that person. Any transaction that enhances the ‘self’ would be helpful for better inter-personal relation. Conversely, any transaction that diminishes the ‘self’ is likely to disturb the inter-personal relation. For instance, when a recovery agent assumes a posture of superiority and belittles the debtor in the communication process, the recovery agent is really making the recovery difficult. Many recovery agents who think otherwise and communicate/ behave rudely or harshly in recovery process may turn out to be mostly counter-productive overall. Following are some of the elements of inter-personal skill for recovery agent :
- Communicate and listen properly and effectively, as described in the preceding paragraph.
- Show empathy and respect to other party, not with standing the fact that he/she debtor to the principal.
- Do not make the debtor feel anxious/ insecure/ threatened by your communication verbal or non-verbal. On the contrary, try to remove such apprehension, if any, of the debtor.
- Give all the information the debtor asks for in connection with the debt and its repayment. This would help improve inter-personal relation and also the recovery prospects.
4. Persuasive Skill:
After having established good rapport with the debtor, the next skill required in a good recovery agent is to be able to persuade the debtor to repay the dues. This may be termed as persuasive skill. The persuasive skill is built on establishing a good rapport and winning the trust of the debtor. Some of the elements of the persuasion in debt recovery may be suggested as follows:
- Explain that the bank (principal) lends money out of the deposits collected from the public and repayment of the loans by the debtor and others as per the terms would enable the bank to pay the deposits when demanded by the depositors.
- Explain your task/ duty of collection of dues on behalf of the principal and that you have no authority to waive/ reduce or unduly postpone the recovery, which only the principal can do.
- Show interest/ concern for the debtor by understanding his/her problem and say that you would try to give assistance to the possible, within the authority, as agent, given to you by the principal.
- Explain that non-payment may adversely impact the debtor’s credit history, which may make his/her future borrowing with any bank costlier and difficult. This should induce the debtor to pay.
- Also explained that non-repayment of the loan dues would amount to breach of the loan agreement and would result in the bank charging higher interest rate.