RBI Circular on Individual Notices in Consortium Lending May Delay Recovery Process, Say Bankers
The recent circular issued by the Reserve Bank of India (RBI) regarding individual notices to be sent to defaulters in cases of consortium lending has sparked a debate among bankers. While the intention behind the circular is to ensure transparency and fairness in the recovery process, bankers are concerned that this new requirement may actually delay the recovery process.
The circular mandates that in cases of consortium lending, all banks involved must send separate show-cause notices to the borrower. This means that each bank will have to draft its own notice, potentially leading to variations in language and content. Bankers fear that these differences in notices could give the defaulter grounds to challenge the process in court, claiming inconsistency among the notices.
According to a head of recovery at a public sector bank, the variations in language and content of the notices could create legal complications down the line. This could ultimately hinder the recovery process and prolong the resolution of the default.
The RBI’s decision to revise its master directions on fraud risk management comes in response to a Supreme Court judgment that emphasized the importance of hearing out borrowers before classifying an account as fraud. The revised rules now require detailed show-cause notices to be issued to individuals and entities facing allegations of fraud, giving them a reasonable period to respond.
While the intention behind the RBI’s circular is commendable, bankers argue that a more streamlined approach should be adopted. They suggest that a single notice issued by the lead bank, as is done under the SARFAESI Act, would be more efficient and less prone to legal challenges.
Legal experts also weigh in on the issue, emphasizing the need for coordination among banks before sending notices to defaulters. They warn that individual notices with differing language could be exploited by borrowers to delay the process. Collaboration and coordination among banks are key to ensuring a smooth and efficient recovery process.
In conclusion, while the RBI’s circular aims to enhance transparency and fairness in the recovery process, bankers and legal experts suggest that a more coordinated approach is needed to avoid delays and legal complications. By working together and ensuring consistency in the notices sent to defaulters, banks can expedite the recovery process and minimize the risk of legal challenges.
