If a person is unable to repay their home loan or personal loan EMIs, it does not give banks or lending institutions the right to harass them. The Reserve Bank of India (RBI) has established strict rules to prevent banks from taking arbitrary actions against borrowers.
No Threats or Harassment by Banks
As per RBI guidelines, banks or loan-providing companies cannot threaten, intimidate, or force a borrower to repay the loan. While banks can employ recovery agents to collect unpaid dues, these agents are required to adhere to ethical practices.
- Recovery agents can only contact customers between 7 AM and 7 PM.
- They are not allowed to misbehave, threaten, or use coercion.
- If an agent misbehaves, the customer has the right to file a complaint directly with the bank.
- If the bank does not take action, the borrower can escalate the complaint to the Banking Ombudsman.
Key Rights of Borrowers During Loan Recovery
1. Right to a Proper Recovery Process
Banks and financial institutions must follow due process while recovering loans. If the loan is secured (i.e., backed by a mortgaged property), the bank has the right to seize the property under the SARFAESI Act but must first issue proper notices.
2. Right to Notice
A borrower does not become a criminal if they default on loan payments. The bank is required to serve proper notice before taking recovery action.
3. NPA (Non-Performing Asset) Status
If a borrower fails to pay their EMI for 90 days, their loan is classified as a Non-Performing Asset (NPA). In such cases:
- The bank must issue a 60-day notice before initiating recovery proceedings.
4. Rights After the Notice Period
If the borrower fails to repay within the notice period, the bank can initiate the process of selling the mortgaged property. However, they must:
- Issue a public notice at least 30 days before the auction, detailing the sale of the property.
5. Fair Valuation of Property
Before selling a borrower’s property, the bank must:
- Determine the fair market value of the property.
- Publish details of the reserve price, auction date, and time.
- If the property is sold for a higher amount than the loan dues, the excess money must be refunded to the borrower.
Conclusion
RBI guidelines ensure that banks and financial institutions follow fair practices while recovering loans. Borrowers should be aware of their rights and should not hesitate to file complaints if they face harassment or unethical recovery practices.
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