TAKING INTO account the horror stories of loan recoveries by banks through agents in the previous quarter, the Reserve Bank of India (RBI) has proposed to tighten the process. The RBI has made it mandatory for the banks to conduct a police verification of the agents or employees of the agencies entrusted with the job.

In the second draft guidelines issued for public comments on Tuesday, the RBI has also asked the banks not to forward cases to recovery agents where a complaint has been lodged, till they have been finally disposed of. Exceptions will be made only when the borrower is considered to be making frivolous complaints. The first draft was placed for public comments in November 2007.

"Banks should ensure that the agents engaged by them in the recovery process carry out, on a periodic basis, verification of the antecedents of their employees, which may include police verification as a matter of abundant caution," the RBI said in the revised draft guidelines.

"In cases where the subject matter of the borrower's dues might be sub judice, banks should exercise utmost caution, as appropriate, in referring the matter to the recovery agents, depending on the circumstances," RBI added.

It has proposed that the agents and the bank employees should carry a copy of the notice and an authorisation letter from the bank along with their identity cards, to avoid embarrassment in case of non-receipt of due notice by the borrower.

The new draft guidelines also propose some additional disclosures in terms and conditions of the bank's contract with the borrower about the circumstances under which the notice period can be waived - a final chance would be given to the borrower for repayment of loan before the sale or auction of the property .

To meet the deadline of fulfilling the Indian Institute of Banking and Finance training criteria within one year, banks were asked to provide the training through other institutes and their own training colleges in association with IIBF.

srinivasalu.reddy@hindustantimes.com ¦ Prakash Sarvankar (38), an ICICI bank customer, committed suicide at his home in the Maharashtra Industrial Development Corporation (MIDC) area in Andheri (East), Mumbai in September 2007 after being allegedly pressured by loan recovery agents.

Sarvankar had taken a loan of ¦ Rs 50,000 and was unable to pay up as he was facing a financial crunch.