RBI orders Mahindra's lending arm to cease loan recovery via third parties

·2-min read
FILE PHOTO: A man walks behind the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai

BENGALURU (Reuters) -The Reserve Bank of India on Thursday directed Mahindra and Mahindra Financial Services (MMFSL) to stop using third-party services for loan recovery until further orders, citing "material supervisory concerns".

RBI's action comes days after reports of a 27-year-old pregnant woman being crushed to death trying to stop a loan recovery agent, working on behalf of MMFSL, from seizing her father's tractor over loan dues.

Following the incident, Mahindra Group CEO Anish Shah in a statement on Twitter said: "We will investigate this incident from all aspects and will also undertake an examination of the practice of using third-party collection agencies that has been in existence."

The shadow lending arm of the Mahindra Group can continue recovery or repossession activities through its own employees, the RBI said in a statement. Non-banking financial companies such as MMFSL use third-party recovery agents to cut costs.(https://bityl.co/Ee60)

MMFSL did not immediately respond to a Reuters request for comment on RBI's directive.

The RBI issued a circular in August advising financial institutions regulated by the central bank to "strictly ensure that they or their agents do not resort to intimidation or harassment of any kind", and that any violation would be "viewed seriously".

"Post this incident, the RBI may crack down further on the use of third-party recovery agents, and rules on this practice will change. The NBFC sector largely depends on these agents for recovery so there could be a broader impact from this move," said Kajal Gandhi, vice president at ICICI Securities.

The digital lending app industry had also attracted the scrutiny of the central bank last year following several complaints relating to violation of privacy and harassment by recovery agents.

(Reporting by Chris Thomas in Bengaluru; Editing by Anil D'Silva and Vinay Dwivedi)