“I have taken a loan from a bank and now cannot repay. Its agents are threatening me.”
“I have taken multiple loans and now I cannot repay any of them.”
“Recovery agents somehow got contact numbers of my friends and relatives and are now spreading the news that I am not paying the loan.”
“I never wanted a loan, but a caller offered me one on very attractive terms.”
“I have used multiple credit cards to pay off my dues.”
I have come across many such grievances at the Moneylife office. Some visit personally, and some call over the phone. Sometimes, someone breaks down emotionally.
Every case has a different reason. Someone lost their job during the COVID pandemic, someone lost in some online game and kept on borrowing to make good the loss, someone is paying hefty interest, since banks are refusing a loan due to low credit score someone approached a lender who was ready to pay a good amount for equally ‘good’ interest without depending much on papers or credit score, someone got trapped into multiple loans for living a lavish lifestyle, someone wanted to make quick money in the share market, or somewhat got caught in the rosy pictures painted by fraudsters like the ‘Torres’.
Unawareness and greed go hand in hand. I am living in a safe world and always want to. But such stories compel me to face the ground reality.
How do I handle such cases? What advice do I give? Let me confess that I just listen patiently. Most of them have no money, so from where to repay? Most of them do not know the terms and conditions, but do know that the rate of interest is very high, particularly when it comes to unpaid bills of credit cards. They do not have any papers or copies of agreements.
It is not that every one of them is a wilful defaulter. Some have really lost their jobs at an early age. They had purchased flats on equated monthly instalment (EMI). Some took loans to pay off previous dues and then landed into multiple unpaid loans.
Their social life is spoilt as recovery agents arrive at their doorstep and start shouting. There are agents who first track the Facebook profile of the borrower and then track his near and dear ones. Then they start calling up these connected people which further worsens the life of the borrower. He has no face to show.
Some borrowers find an ‘easy’ way of using credit cards without understanding the impact of interest rates on unpaid bills. I have to try my best to pacify them by digging out more information like whether they have any life insurance policy or jewellery or any other investment. The interest rate on loans against such things is cheaper and these loans can be utilised to pay off loans attracting the highest rate of interest.
There are a few borrowers who can pay at least some amount per month, but lower than the prescribed monthly instalments. Instead of not paying the instalments at all, at least small but regular payments can establish their intention of repayment thereby underlining the fact that they are not wilful defaulters. Such borrowers should approach the lenders to explore the possibility of restructuring their repayment schedule.
Reducing the instalment amount will increase the tenure of the loan, but may avoid any unpleasant incidents (like legal action or seizing mortgaged flats) in future. However, proper care should be taken before signing any papers for this and a copy of the same must be obtained.
Using multiple credit cards and not making any disciplined payments will prove quite treacherous. Though KYC—know-your-customer—norms apply to the issuance of credit cards, there are no specific guidelines by the Reserve Bank of India (RBI) to obtain income proof of the prospective credit card-holder. Banks do have their own policies, but the million-dollar question is how far are they adhered to when it comes to completing given targets.
Recently, a young person from a small town reported that he had a home loan, car loan, personal loan and outstanding against six credit cards. He lost his not-so-highly-paid job and started a business for a livelihood. He raised the capital using these cards and a personal loan.
I really wonder what made him go in so hurriedly for a car loan and housing loan at such an early age with a limited take-home salary. Was it a prestige issue? He could have gone in for a rental home and used available public transport. Why did he not consult some experienced person before raising capital in a very costly way?
I advised him to sell off the car, get out of that loan and use the extra money to pay the maximum possible dues against credit cards. I asked him to explore the possibility of selling the house and going in for a rental one, particularly one shared by a couple of people, so the rent would be that much less.
He did not have any other assets. He was also not aware of the credit score concept and I had to explain how that would get adversely affected due to so many outstanding loans. The only plus point was that he was regularly paying the monthly instalments before losing the job. So he could ask the lenders to restructure the repayment schedule and underline the fact that he was not a wilful defaulter.
Then there are the very greedy who want quick money. Long ago, post-market crash in 2008, while sitting with my broker, he informed me that two of his clients had mortgaged their bungalows and invested in shares! He tried to convince them not to take such steps, but they just didn’t listen. Losing shelter was a painful reality. What happened in the latest Torres scam? Reports say that many investors borrowed funds to invest in the scheme. How would these loans be repaid?
I was very sure that these people did not consult the ‘bujurg’ – the elderly ones in the family. They were hiding some facts. Taking them into confidence and making them speak the truth rarely fetched some fruits.
Another common thing was the harassment by the recovery agents. Calls at odd times, in-public insults, jail threats and whatnot. Well, RBI has taken proper cognisance of such incidents. It is of the view that all defaulters are not culprits and they should not be harassed abusively. On the contrary, they also need proper guidance. Let us see what directions RBI has given to the lenders.
RBI Fair Practices Code for Lenders, 5 May 2003, is quite a good directive. Clause 2 (v) (a) says that lenders should refrain from interference in the affairs of the borrowers except for what is provided in the terms and conditions of the loan sanction document. In the matter of recovery, clause 2 (v) (c) clearly directs the lenders not to resort to undue harassment like persistently bothering the borrowers at odd hours, use of muscle power for recovery of loan, etc.
Another old circular of RBI with no. 2007-2008/296 of 24 April 2008 states in clause 3 that banks, as principals, are responsible for the actions of their agents. They should see that the agents are adhering to fair practices and if not, then seriously view complaints against such agents.
Contacting the borrower’s relatives and friends and disclosing the default status of the borrower is tantamount to defamation. The borrower can lodge a formal police complaint with a copy to the lender. The borrower may write to RBI against the bank whose agent is harassing him.
Apart from this, some banks are offering credit counselling services to help individuals manage their debt and improve their credit scores. A law expert may throw more light on the relevant sections in the newly introduced Bharatiya Nyay Samhita, 2023.
Sharing this information does not mean that a defaulter has complete backing from the legal system. The above guidelines will help a defaulter who has genuine difficulties in repayment. Under any circumstances, he should not adopt any unfair practice and avoid every loan trap. The main objective of writing this article is that readers should understand the hidden dangers and make others also aware of the same.
(Retired banker Abhay Datar is a consumer activist and an expert counsellor at Moneylife Foundation. He was a member of the Managing Committee of Mumbai Grahak Panchayat (MGP) and also the treasurer at MGP for over two and a half years. After working at Bank of Baroda for 29 years, he retired as IT Manager. Mr Datar has resolved many cases related to banking and has also handled cases related to insurance and mediclaim.)
