'Can't outsource recovery agents': RBI cracks the whip on M&M Financial

The Reserve Bank of India (RBI) on Thursday barred non-banking financial services company Mahindra & Mahindra Financial Services (MMFSL) from outsourcing recovery agents, days after a 22-year-old pregnant woman died in Jharkhand’s Hazaribagh while trying to block loan recovery agents from taking away her father’s tractor and was crushed under the vehicle. The loan was taken from M&M Financial.

“The RBI has… in exercise of its powers under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, directed MMFSL, Mumbai, to immediately cease carrying out any recovery or repossession activity through outsourcing arrangements, till further orders,” the RBI said.

“This action is based on certain material supervisory concerns observed in the said NBFC, with regard to the management of its outsourcing activities,” the RBI said, adding that the NBFC might continue to carry out recovery or repossession activities, through its own employees.

Ramesh Iyer, Vice Chairman & Managing Director, Mahindra Finance said, "We have a detailed policy in place for compliance of third parties, with regard to repossession of vehicles. In light of the recent tragic incident, we have stopped third party repossessions and will further examine whether and how third party agents will be used in the future."

M&M Financial declined comment. Mahindra Group’s MD & CEO Anish Shah had earlier said the company will investigate the incident and examine the practice of using third party collection agents.

This is probably the first time the regulator has cracked down on lenders on recovery by coercive methods, which is typically a hallmark of outsourced recovery agents.

In June, RBI Governor Shaktikanta Das had warned that the regulator will take stringent action against lenders for harsh methods used by recovery agents. “We have received complaints of customers being contacted by recovery agents at odd hours, even past midnight. There are also complaints of recovery agents using foul language. Such actions by recovery agents are unacceptable and pose a reputational risk for the financial entities,” Das had said, adding that the RBI had taken serious note of such incidents and will not hesitate to take stringent action.

“It has to be seen what the RBI does further because a majority of players outsource these activities,” a chief executive of a large NBFC told Business Standard.

Last month, the RBI issued directions to the regulated entities asking them to ensure that borrowers do not receive phone calls before 8 am and after 7 pm.

“Regulated entities and their agents must 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 upon the privacy of the debtors’ family members, referees and friends, sending inappropriate messages either on mobile or through social media, making threatening and/ or anonymous calls,” the RBI had said.

The issue of harassment by recovery agents first came to the regulator’s notice back in 2007 when the RBI warned ICICI Bank of stern action in case such incidents recur.