what is loan recovery

What is Loan Recovery?

Chup Chup Ke 2006

The scene shows Bandya (played by Rajpal Yadav) who has traveled to meet Jaidev Prasad (Anupam Kher). As Bandya reaches Jaidev’s home, he witnesses many recovery agents outside the home. All of them are shouting and want their money while Jaidev doesn’t have any money.

Bandya claims to be Jaidev’s late son’s associate. He wants to pay his son’s share of money as the company liquidates. In this blog, Learning Perspectives will explore the meaning of loan recovery.

What is Loan recovery?

Recovery for a loan begins when the account reaches the defaulter stage.
Loan recovery is engaging with credit customers or Loan borrowers on behalf of the lending organization. Loan recovering firms share an impactful result in assisting NBFCs or banks in ensuring positive credit risk management. Thus, it plays a vital role in the Finance industry.

How do Banks recover loans?

When a customer fails to repay the installments, banks, and loan recovering agents are outsourced for such services.  This procedure entails:


1. Payment reminders via inbound calling.

2. Contacting acquaintances/family members to inquire about the borrower’s situation.

3. Taking Judicial/Legal actions against an individual or a company

4. Sale of the mortgaged property which was (kept as collateral) at the time of borrowing money

5. Using the “CIBIL” Report to show he/she is a defaulter.

Anti-recovery agent legislation

Sometimes people are afraid of recovery agents, and as a result of their harassment, a borrower may commit suicide. A policy in the loan agreement allows a lender to recover the settlement amount from the guarantor/co-borrower of the loan. However, RBI has issued broad recommendations for recovery agents to follow in order to maintain a delicate balance in the credit sector of the economy and with the clients. Some of these guidelines are as follows:

  1. No agent can connect with the borrower before 7 AM and post 7 PM.
  2. Borrowers or their families cannot be harassed for debt repayment.
  3. No violence policy should be followed by the agent even if the amount is irrecoverable.

Provisions to Loan Recovery Firms/Agents

Loan defaulters may affect the bank’s credit system.

As a provision to assure timely repayments from such individuals RBI has formed the following guidelines: –

1. Debt Recovery Tribunals (DRT) were launched under the Banks & Financial Act 1993, which allowed money lenders to recover debts up to a maximum of Rs.  20 Lakhs.

2. Personal loan defaulters are sued by banks/financial institutions under The Indian Penal Code section 420. It requires the individual to pay the loan amount with interest within a specific timeline or face imprisonment.

3. Lok Adalat was established to file recovery cases worth more than Rs. 1 Crore. They offer legal assurance to recover the loss from the defaulter by acquiring his assets.

Loan Recovery Careers

If you are aspiring to join this as a profession, RBI has announced the launch of certification courses that will help individuals to learn the rules & regulations of the Debt Recovery Act and other financial laws. This course will include over 100+ hours of training which will prepare you to serve as a Loan Recovery Agent for any Banks/Financial Institutions.
More than 60% of government or private bodies that deal in credit accounts (short-term or long-term) now allow an individual to join their recovery wing and improve their debt-Recovery Rate.

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