Loans: Rights of banks and customers

Whenever money is lent it is done so with the expectation that it will be returned back.

This expectation is no different from a bank.

Whenever a loan account is 'overdue' as per the due dates specified in the agreement, the bank will adopt necessary measures to recover it.

In this process, banks have the right to file a suit with the debt recovery tribunal and possess the security, in case the situation demands it.

Default cases are handled by the collection department of the bank who entrust agencies with the task.

Loan recovery process is just like any other job in which targets are set and incentives are paid.

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All borrowers are provided the opportunity and have a right to approach the bank if there is any difficulty in paying instalments and to choose an option to restructure their debt to enable a smooth repayment process.

Preliminary notices are sent to the borrower mentioning the over dues with interests and penal interests.

If the bank has reason to believe that the customer is wilfully delaying the repayment, or if the customer has not come forward with a definite plan of action to repay the dues, the bank can opt for legal proceedings.

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If there is a guarantor, the bank might approach him, as according to the guarantor agreement he is supposed to pay the loan when the applicant defaults.

The follow up from the bank will start as soon as a single repayment is broken.

But further proceedings depend upon the customer's approach to the issue and his current circumstances.

The legal procedures will definitely not emerge out of the blue, it is a process resorted to if initial measures do not yield results.

There are situations like death, ill-health or accidents that can unintentionally break the repayments.

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In such cases banks will give justifiable holidays to the customer or his family.

The Reserve Bank of India's guidelines says banks should give reasonable time to pay up and also forbids using 'muscle power' to recover loans.

There is a laid down code of conduct which banks need to adhere.

Collection efforts, lawsuits and subsequent hearings may require the lender a legal representation to pursue.

The borrower should approach a lawyer with full details especially if he feels that there is justice in his side or injustice from the bank.

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In the case of a home loan, the lender who receives the liens can seize the property legally and liquidate it to recover the debt.

A legal solution sometimes takes years. Also as property prices vary with time there are chances for delaying the liquidation or the borrower could delay their eviction from the house with justifiable reasons.

In the case of auto loans, the bank informs the police before seizing the vehicle and in cases where they do not find the vehicle, they seek police assistance to locate it. Banks registers seized vehicles in their name to avoid disputes.

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In case of unsecured loans like personal loans, the banks file civil or criminal suits against the borrower for cheque dishonour.

Compared to a home loan, action is quick for other loans.

It is a challenge to put the whole process of loan recovery and holiday periods in a formal framework due to its delicate nature.

It will always involve some element of pressure and coercion and the borrower is liable for the debt as well as the collection and legal costs incurred by the bank for its recovery.

There have been many instances of ill-treatments faced by the borrower from debt recovery agents.

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RBI guidelines strictly protect the interest of the borrower and any unethical practices by recovery agents.

It is also mandatory to complete a certificate course and training from the Indian Institute of Banking and Finance to be employed as a loan recovery agent.

Consumers can take action against banks if agents harass them.

Any kind of loan agreement is a legal contract.

Therefore if the borrower fails to repay, lender can sort it through legal means, though an exact period for an official declaration of a 'default' and related proceedings varies from case to case.

Consumers always have the right to raise their voice against any unethical practices or insufficient time provided.