The debt collection business is a
relatively new concept in India. Like many modern tools,
this business was also introduced to India by foreign
businesses who came to India in horde in early 90’s and
brought with them myriad modern tools, practices and
systems. Like other sectors, banking also witnessed a large
scale foreign firms setting up their operations in India.
Retail consumer loans became an important product in the
portfolio of the banking industry. Easy availability of
credit also bought with it the problem of payment defaults,
which eventually led to the emergence of debt collection
agencies.
In India,
debt collection was never treated as a specialized job and
was always treated as one of the jobs that legal departments
of the banks and financials institutions were required to
undertake. Legal department would approach the collection
job strictly as a legal issue rather than doing it with the
objective of revenue collection. For legal department, the
only tool available was litigation and no other
non-litigation tool was applied. Long and winding legal
processes, the Indian legal system could not help the cause
of the legal departments of the banks. On the other hand,
foreign banking firms introduced the concept of specialized
debt collection services. Debt collection services became
one of the many services that began to be outsourced to
specialized agencies. These agencies mushroomed in
metropolitan cities including Delhi and Mumbai. These
agencies were initially supported by the respective banks;
they were very small and their staff was uneducated, being
not aware of anything about the concept of the debt
collection. The agencies usually worked in a specific area
of the city for only one client – mostly a bank.
The
third-party debt collection industry plays an important role
in the Indian economy. The industry employs hundreds of
thousands of Indians as collection professionals, who
collect on past-due accounts referred to them by various
credit grantors, such as credit card issuers, banks, retail
stores, hospitals and other health care services, or by
government departments. Business purchases of this industry
and personal purchases by its owners and workers ripple
through the economy, supporting hundreds of thousands more
jobs across the country. Further, the industry benefits the
economy by recovering billions of dollars in delinquent debt
each year that would otherwise go uncollected. The economic
benefits of third-party debt collection are significant.
Citibank has been the pioneering company in India which
started hiring the services of debt collection agencies to
collect the debts.
The debt collection industry in India also has grown sharply
this year as higher borrowing costs, rising inflation and
the general slowdown in the economy force more companies and
individuals into difficulties. Underlying debt has gone
through the roof and lenders and organizations increasingly
want to move any bad debt off their books. Whether it is a
high street bank, a credit card lender or a mobile phone
company, growing numbers are turning to professional debt
collectors in a more difficult environment.
Following
have been the services usually outsourced to Indian debt
collection agencies, involved in providing the support in
debt collection area: Business debt collection. Unsecured
debt. Medical debt collection. Credit card debt. Bad cheque
collection. Commercial debt. Consumer debt. Nationwide debt.
Government debt.
The debt
collection industry in India is growing at a faster pace and
is surely poised for growth. The credit card outstandings
have shot up by a whopping 87% at Rs 26,596 crore, during
the January-May this year, from Rs 12,375 in the period year
ago. The industry analysts blamed the banks for the current
state of affairs. The RBI also encouraged banks to shift bad
loans off their books more quickly because they will be
required to hold more capital against risky assets that may
default.
COLLECTION INDUSTRY – UNREGULATED SCENARIO
The
collection agencies suffer from their own shortcomings due
to unregulated and primitive nature of this business in this
country. The staff is untrained both in soft skills and
legal issues. Being unregulated, the procedures are not
standardized. The pliable reputation of the judiciary at the
lowest level in the country has been used to their advantage
by people in collection business. With the patronage of
minuscule minority of pliable judges simple civil defaults
are registered as criminal cases and the customers are
harassed into paying up. Slow and long civil recovery court
process has no takers in this age of instant results where
revenue targets are the most sacrosanct. Weekly recoveries
are monitored and immediately placed in the asset side of
the account books of the banks. Under such strict and cut
throat environment, there is pressure on the banks to keep
their account books healthy therefore such aggressive and
extra-legal methods are employed for quick recoveries.
Their
main strategy for debt collection is by filing the criminal
case, repeatedly calling the customers at even odd hours as
well as the personal visit to the customers. These debt
collection agencies are also used by the banks for
repossessing the financed vehicles from the defaulters.
Initially, these agencies were highly successful in
collecting the debt and they also take the advantage of the
situation where there is no law, guidelines for debt
collection as well as for operating the debt collection
agency. People are not aware of their rights and remedies
available to them and also hesitant to initiate the action
against these agencies or banks because the amount involved
is not huge.
In this
background, the debt collection agencies feel encouraged
adopting more unethical means for recovery. There have been
numerous cases whereby the agencies used unethical norms.
One of them is - a debt collection agency repossessed the
vehicle of an advocate from the premises of the district
court at Delhi by use of force and without following the due
course, the said advocate pursued the matter with the court
and order is passed against the agency. This case got much
publicity in the newspapers in India. Similarly, in the year
of 2007, collection agency of ICICI Bank repossessed the car
by use of force while the person was driving back to home.
He filed the case for damages before the State Consumer
Forum and the Consumer Forum awarded adequate compensation
to the person.
GOVERNMENT / RBI INTERVENTION
Debt
collectors in the past had a lot of leeway and it wasn't
uncommon for collectors to embarrass, harass or humiliate
debtors. The courts came to the rescue of harried public and
guidelines were laid down for the Banks to follow who engage
the services of collection agencies. After the intervention
of judiciary, the Reserve Bank of India (RBI) which is the
super regulator of the banking industry, wore up to the need
of regulating the unruly collection agencies. RBI stepped in
and laid down its own guidelines for the banking industry to
follow.
The
guidelines prescribed by RBI are enforced against the banks
that have contractually employed collection agencies. The
banks in turn via their contracts with the collection
agencies ensure that the RBI guidelines are followed. Now,
under the norms passed out by RBI, it is illegal for
third-party collectors to threaten violence or harm to a
debtor, use obscene language, or repeatedly use the phone to
harass a consumer. In addition, third-party collectors
cannot threaten to arrest a consumer for an unpaid debt or
threaten to seize or garnish a consumer's property or wages
unless the collector intends to do so and it is a legal
cause of action. Failure to comply will result in
disciplinary action and may result in permanent termination
of employment and / or business with the particular bank.
