The RBI on Thursday proposed stricter norms for recovery of overdue loans under which financial institutions and their recovery agents cannot call borrowers before 8 in the morning and after 7 in the evening.

Regulated Entities (REs) like banks and NBFCs should not outsource core management functions, including policy formulation and decision-making functions like determining compliance with KYC norms and according sanction for loans, said the 'Draft Master Direction on Managing Risks and Code of Conduct in Outsourcing of Financial Services'.

"The underlying principle of the proposed directions is that the RE should ensure that outsourcing arrangements neither diminish its ability to fulfil its obligations to customers nor impede effective supervision by the supervisory authority," the Reserve Bank of India said.

The draft said REs should put in place a board-approved code of conduct for Direct Sales Agents (DSA)/ Direct Marketing Agents (DMA)/ Recovery Agents (applicable to commercial banks, cooperative banks and NBFCs).

The REs should ensure that the DSA/DMA/Recovery Agents are properly trained to handle their responsibilities with care and sensitivity, particularly aspects, such as soliciting customers, hours of calling, privacy of customer information and conveying the correct terms and conditions of the products on offer.

"The REs and their Recovery Agents shall not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude upon the privacy of the debtors'/their guarantors’ family members...," the draft said.

They should not also send inappropriate messages either on mobile or through social media, making threatening and anonymous calls, persistently calling the borrower/guarantor, and making false and misleading representations.

"Further, the REs and their Recovery Agents are barred from calling the borrower/guarantor before 8:00 a.m. and after 7:00 p.m. for recovery of overdue loans," the RBI has proposed.

The draft, on which the RBI has invited stakeholders' comments by November 28, 2023, also said the REs should have in place a management structure to monitor and control their outsourcing activities.

It also proposes norms for off-shore outsourcing of financial services.

The Reserve Bank said the draft Directions have been prepared by incorporating, updating and where required, harmonising the extant directions.

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