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Banks and Financial institutions have a liability to follow a process when handling a loan defaulter. In case of default on repayment of a secured loan like a home or car loan, the biggest worry of a borrower is that they would have to part with the financed asset like the house, car etc. However, borrowers should know that even upon default, they have certain basic rights which cannot be overlooked by the lender. In this article, we’ll discuss the rights of a loan defaulter and therefore the steps a bank, NBFC, or a financial organization follows to recover the cash borrowed by the defaulter.
Lenders sometimes engage recovery agents to coerce borrowers to repay their loans. The borrower’s privacy is to be respected. These agents can contact the borrower at a place specified by him. If not specified, they can contact him either at his home or workplace.
When the security for a loan is auctioned by the lender to recover the dues, and if the sale proceeds are more than the total dues, a borrower is entitled to receive the balance amount. Even if a borrower’s asset is repossessed, it is imperative to monitor the auction process. The reason being lenders tend to refund any excess amount realized after recovering their dues from the auction. Therefore, the borrower must ensure that the money is refunded to the borrower in a timely manner.
The value of the property is often much more than the total dues of the lender. However, the lender may only be interested in realising as much value so that the dues are recovered, which may not be in the best interest of the borrower. To ensure borrower’s right to fair valuation, RBI has set guidelines for valuation of collaterals. As per the SARFAESI Act, before selling the repossessed asset, the lender needs to get the valuation done from an approved valuer. In compliance with these guidelines, most banks have prescribed detailed criterion for empanelment of valuers and generally only these valuers are used. This ensures that the repossessed asset is not sold at any price – unilaterally determined by the bank.
You have a right to raise an objection to the repossession notice sent by the bank during the notice period. The authorized officer has got to reply within 7 days, informing you whether your objections were accepted or denied, giving valid reasons.
Banks are regulated entities. They cannot nor do they have the right to mistreat or harass you for defaulting. The bank has got to keep certain things in mind once they are communicating with you. A collection officer/bank agent has got to politely request to satisfy you at an area and time that’s convenient for you. The agent can meet you only from 7 AM to 7 PM. The collection agent is meant to treat you and your family with respect, without humiliating, harassing, or any usage of abusive language.
Lenders often seek the help of recovery agents to coerce borrowers to repay their loans. However, the agents cannot cross the road that banks have prescribed as a part of their code of commitment to customers. These third-parties can contact defaulters either at an area specified by the latter, residence or workplace. Moreover, they can make such visits only at specified times during the day. They cannot violate norms of decency and civil behaviour during their visits. In case the agents plan to intimidate or humiliate the borrowers or their relations, the latter can raise the matter with the lenders and eventually, the banking ombudsman offices.
It is not a criminal
offence to default on loan repayment. Loan default is generally a civil wrong,
except in cases where there is fraudulent or dishonest intention on the part of
the borrower at the time of availing the loan.
A right to adequate notice makes sure that you are informed about a possible future action by the lender well in advance so that you have time to act on it. Typically, banks and financial institutions give a 60-day notice under the SARFAESI Act before proceeding with securitisation action in respect of the secured asset.