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⚖️ Loan Recovery Process

Loan Recovery means the process by which a bank, NBFC, private financer, or any lending institution recovers the money lent to a borrower (with interest and charges) if the borrower fails to repay on time.

🔑 Loan Recovery Process in India

  1. Reminder & Follow-Up
    • Phone calls, SMS, and emails are sent for EMI reminders
    • Recovery agents may visit borrower's home/office
  2. Penalties & Late Fees
    • Overdue interest and late payment charges are added
  3. Restructuring / Settlement
    • Lender may allow rescheduling EMIs
    • One-time settlement (OTS) at a negotiated amount
  4. Legal Recovery (if borrower defaults)
    • SARFAESI Act, 2002 (for secured loans like home loan, business loan)
    • DRT (Debt Recovery Tribunal) – For loans above ₹20 lakh
    • Civil Suit / Arbitration – For unsecured loans or smaller cases
  5. Use of Recovery Agents
    • Banks/NBFCs use authorized recovery agencies
    • Must follow RBI guidelines (no harassment, abusive language, or threats)
  6. Credit Bureau Reporting
    • Default reported to CIBIL, Experian, CRIF, Equifax
    • Affects borrower's credit score & future loan eligibility

⚖️ Rights & Responsibilities

✅ Rights of the Lender

  • Recover dues through legal means
  • Charge penalty & interest
  • Auction secured assets (if applicable)

✅ Rights of the Borrower

  • Receive proper notice before recovery/auction
  • Option to settle or restructure loan
  • Protection against harassment (RBI & Supreme Court guidelines)

📌 Loan Recovery Strategies

For Lenders & Finance Companies

Early Warning System

Track EMI delays and identify potential defaults early

Soft Recovery

Reminders, counseling, restructuring options

Hard Recovery

Legal notice, DRT, SARFAESI action

Third-party Recovery

Authorized recovery agencies on commission basis

Digital Recovery

Automated calls, payment links, settlement offers

💡 Important Information

SARFAESI Act, 2002: Allows banks to seize and auction secured assets without court intervention for secured loans.

DRT (Debt Recovery Tribunal): Special tribunal for recovery of debts above ₹20 lakhs.

RBI Guidelines: Strict rules against harassment by recovery agents.

⚠️ Consequences of Default

• Negative impact on credit score (CIBIL score affected)

• Legal proceedings and asset seizure

• Difficulty in getting future loans

• Additional penalties and charges