RBI Deputy Guv highlights need for on-ground approach in loan recovery

Loan Recovery: While sanctioning and disbursement of loans have been fast getting digitised, recovery, on the other hand, still requires an on-ground approach-a sort of "feet on the street" approach. Speaking to reporters in Mumbai, Swaminathan J, the Deputy Governor of RBI, brought out that though digital infrastructure has completely transformed loan approvals, the recovery process remains a nightmare, especially in cases relating to fintech lenders.

"While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still requires a 'feet on the street' and empathetic approach," Swaminathan said. Many fintech platforms operate by extending small-value loans to customers with poor credit profiles, which invariably sees them adopt aggressive and sometimes unethical recovery tactics, he said. 

Swaminathan also expressed concern about certain Recovery Practices that intrude into the privacy of borrowers, including data of personal nature and contact details, to pressurise them. He warned that these tactics not only violate individuals' rights to privacy but also run the risk of tarnishing the reputation of regulated lenders associated with these fintech platforms.

Swaminathan underlined the RBI's stand when he said that even while financial entities can outsource some activities, they are essentially responsible for the acts of their third-party agents. He also highlighted that digitization provides banks and NBFCs with opportunities to delve deeper into customer behaviour for the design of suitable products, thereby enhancing risk management and compliance.

"The role of the RBI as a regulator is to put in place an appropriate and balanced framework that fosters innovation while ensuring the risks are mitigated in a prudent manner," Swaminathan further said. He clarified that the RBI does not want to suppress business but to protect the stability and integrity of the financial system.