The biggest advantage of a personal loan is that it can help us out when situations get tight financially. Thus, to lessen the financial strain, it is your duty as the borrower to repay the borrowed amount as soon as possible. It might be beneficial to comprehend the bank recovery procedure.
To retain fair loan recovery processes and protect the rights of both lenders and consumers, the Reserve Bank of India (RBI) has set specific standards for the recovery of personal loans. This blog will go over the detailed steps involved in loan recovery as well as RBI recommendations.
Best Personal Loan Offers for You in 2024
| Lender Name | Rate of Interest (R.O.I) | Processing Fees | Loan Amount | CIBIL Score |
| Paysense Personal Loan | 18% – 22% (Reducing Per Annum) | 2% – 5% | 50.00 k – 10.00 Lacs | 700 |
| Werize Personal Loan | 15% – 22% (Flat Per Annum) | 3% – 5% | 30.00 k – 5.00 Lacs | 650 |
| Money View Personal Loan | 17% – 36% (Reducing Per Annum) | 1% – 5% | 5.00 k – 5.00 Lacs | 650 |
| IDFC Bank Personal Loan | 10.49% – 22% (Reducing Per Annum) | 1% – 4% | 1.00 Lacs – 40.00 Lacs | 700 |
| Incred Personal Loan | 16% – 33% (Reducing Per Annum) | 1% – 5% | 50.00 k – 10.00 Lacs | 650 |
| Aditya Birla Personal Loan | 12% – 28% (Reducing Per Annum) | 1% – 4% | 1.00 Lacs – 50.00 Lacs | 650 |
| Finnable Personal Loan | 16.95% – 30% (Reducing Per Annum) | 1% – 5% | 50.00 k – 10.00 Lacs | 700 |
| Hero Fincorp Personal Loan | 9.5% – 16% (Flat Per Annum) | 1% – 5% | 50.00 k – 10.00 Lacs | 700 |
| Muthoot Finance Personal Loan | 14% – 22% (Reducing Per Annum) | 1% – 3% | 1.00 Lacs – 7.50 Lacs | 685 |
| Upward Fintech Personal Loan | 18% – 32% (Reducing Per Annum) | 2% – 5% | 25.00 k – 5.00 Lacs | 650 |
| Cashe Personal Loan | 1.5% – 3% (Fixed Monthly) | 1.5% – 2% | 10.00 k – 4.00 Lacs | 550 |
| Finzy Personal Loan | 10.99% – 18.99% (Reducing Per Annum) | 1% – 3% | 1.00 Lacs – 10.00 Lacs | 700 |
| Fibe (formerly EarlySalary) | 15% – 30% (Reducing Per Annum) | 1% – 2% | 8.00 k – 2.00 Lacs | 550 |
| Faircent Personal Loan | 25% – 30% (Reducing Per Annum) | 7% – 9% | 50.00 k – 10.00 Lacs | 700 |
| Stashfin Personal Loan | 2.45% – 4% (Fixed Monthly) | 2% – 2% | 5.00 k – 5.00 Lacs | 725 |
| Tata Capital Personal Loan | 10.5% – 14.25% (Reducing Per Annum) | 0.75% – 2% | 75.00 k – 25.00 Lacs | 720 |
| Standard Chartered Bank Personal Loan | 11.49% – 20% (Reducing Per Annum) | 1% – 3% | 1.00 Lacs – 1.00 cr | 740 |
| Bajaj Finserve Personal Loan(Prime) | 13.5% – 15% (Reducing Per Annum) | 0.5% – 1.5% | 1.00 Lacs – 35.00 Lacs | 685 |
| Axis Bank Personal Loan | 11.15% – 16.25% (Reducing Per Annum) | 1% – 4% | 1.00 Lacs – 40.00 Lacs | 690 |
| ICICI Bank Personal Loan | 10.5% – 15% (Reducing Per Annum) | 0.5% – 1.5% | 1.00 Lacs – 1.00 cr | 700 |
| Fullerton Personal Loan | 14% – 32% (Reducing Per Annum) | 1% – 3% | 1.00 Lacs – 25.00 Lacs | 705 |
| HDFC Bank Personal Loan | 10.25% – 16% (Reducing Per Annum) | 0.5% – 1.5% | 1.00 Lacs – 1.00 cr | 700 |
| Shubh Life Personal Loan | 28% – 44% (Reducing Per Annum) | 1% – 3% | 5.00 k – 2.00 Lacs | 650 |
| Loan Tap Personal Loan | 11% – 24% (Reducing Per Annum) | 1% – 2% | 50.00 k – 7.00 Lacs | 675 |
| KreditBee Personal Loan | 1.5% – 3% (Fixed Monthly) | 5% – 6% | 1.00 k – 3.00 Lacs | 550 |
| FlexSalary Personal Loan | 1.5% – 3% (Fixed Monthly) | 300% – 750% | 4.00 k – 2.00 Lacs | 550 |
| Mpokket Instant Loan | 2% – 4% (Fixed Monthly) | 50% – 200% | 500 – 30.00 k | 550 |
| MoneyWide Personal Loan | 17% – 24% (Reducing Per Annum) | 1% – 3% | 10.00 k – 3.00 Lacs | 650 |
| Insta Money Personal Loan | 13% – 36% (Reducing Per Annum) | 1% – 4% | 5.00 k – 25.00 k | 650 |
| Kotak Bank Personal Loan | 10.75% – 22% (Reducing Per Annum) | 0.75% – 2.5% | 1.00 Lacs – 50.00 Lacs | 705 |
| Cholamandalam Personal Loan | 14% – 22% (Reducing Per Annum) | 1% – 3% | 1.00 Lacs – 35.00 Lacs | 675 |
| SBM Personal Loan | 14% – 20% (Reducing Per Annum) | 1% – 4% | 50.00 k – 25.00 Lacs | 700 |
| Axis Finance Personal Loan | 14% – 16% (Reducing Per Annum) | 1% – 3% | 1.00 Lacs – 50.00 Lacs | 650 |
| Shri Ram Finance Personal Loan | 13% – 16% (Reducing Per Annum) | 1% – 3% | 1.00 Lacs – 25.00 Lacs | 680 |
| One Tap Loan Personal Loan | 24% – 36% (Reducing Per Annum) | 2% – 5% | 50.00 k – 5.00 Lacs | 650 |
| Credset Personal Loan | 18% – 30% (Reducing Per Annum) | 3% – 5% | 50.00 k – 5.00 Lacs | 650 |
| RK Bansal Personal Loan | 1% – 1% (Fixed Per Day) | 5% – 6% | 10.00 k – 50.00 k | 650 |
Loan Recovery: What Does It Mean?
Personal loan recovery is the process of repaying the borrowed loan amount. These may include balance, interest, and any other applicable fees under the conditions and terms of the loan arrangement. Borrowers are required to make consistent payments, typically in the form of EMIs, until the loan is repaid in full. The borrower’s decision to select an amount of borrowing that exceeds their capacity to repay or unforeseen financial difficulties are the usual causes of repayment failure.
How Can the Loan Amount Be Recovered?
When an individual defaults on a loan, the lending institution initiates the loan recovery process.
RBI’s debt recovery regulations ensure that the borrower’s legal obligations and rights are upheld while the lender benefits from the process.
Banks may employ a variety of debt recovery techniques, contingent on the reason for the default. They can choose to use collateral to get the money back, or they can offer a lengthier moratorium. Eventually, if none of these work, a recovery agent might be sent away.
The Two Major Ways that Banks Recover Loans are as follows:
- Applying a non-judicial Process
- Through Legal Channels
Addressing the Process of Loan Recovery
The reason for the loan default is the main element that determines the loan recovery process. Let’s understand this better with some samples:
First Scenario:
Raghav is budget-conscious with money and has a decent credit score. Nevertheless, he is unable to repay his obligation because of an unexpected circumstance, such as a company-wide layoff.
In this situation, the lending company can give him or her one of the following options:
A brief suspension in which he won’t have to make the EMI payment
Extension of the repayment period that reduces the EMI amount
If the applicant is unable to repay the balance due within a reasonable time, the lender may provide a “haircut,” in which case the amount lent is reduced.
Note that Raghav’s credit score may be negatively impacted by a moratorium or “haircut.” He would be best served by repaying the financial obligation in full over an extended period.
Second Scenario:
Mr. Srijib, the applicant, applied for the loan despite having a low credit score since he is unsure about his ability to pay it back. He’s been given a loan, but because of this, it has a short payback period and a high interest rate.
Regardless of how real the problems are, he might not be eligible for a moratorium or “haircut” in the event he is at any point incapable of repaying the loan.
If Srijib goes into default on a secured loan, the lender may also choose to sell the collateral to recover the loan balance. Any money left over after the loan sum is repaid by using the sale belongs to Srijib.
If not all of these strategies work, the lender may choose to send out loan collection agents.
The Central Bank has set several guidelines to regulate the loan recovery process. The RBI’s loan recovery guidelines are as follows:
RBI Guidelines for Recovering Loans
If an applicant cannot make their repayments, the bank or NBFC is required to give them a Notice of Default.
- Lenders must follow the Fair Practices Code for transparency and justice in debt collection.
- Lenders are not allowed to use any sort of intimidation or compulsion to recover the unpaid loan sum.
- Although lenders are allowed to engage recovery agents, they are not allowed to employ any techniques that go against the RBI’s Code of Conduct.
- Lenders should have a systematic debt settlement mechanism that borrowers must be informed about.
- Borrowers may take proper legal action if they feel that their rights are being abused throughout the loan recovery process.
The purpose of drafting these bank loan recovery guidelines was to ensure that a standard method would be followed and that there would be no room for variation.
Read Here for Loan Recovery Procedure: Actions and Approaches
Lenders start the loan recovery procedure when borrowers miss payments on their loans to collect the unpaid balance. Both the borrowers and lenders need to comprehend how this procedure functions. Check out the methods and tactics used in the loan recovery process in this post. This will provide insight into how debtors might handle this difficult circumstance.
- Analysis of Default
When a borrower defaults on a loan or fails to make payments for an extended period, the lender declares the financial obligation to be in default. Then they start the loan recovery procedure. When a loan is in default, the lender evaluates the circumstances to decide what should happen next. This could entail getting in touch with the borrower to talk about the late payments. Or maybe reminding them of upcoming deadlines, and looking at their financial situation.
- Interaction and Negotiation
Throughout the loan recovery process, productive interaction between borrowers and financial institutions is crucial. The borrowers need to speak about their situation and look into possible solutions. Borrowers who are having financial challenges should get in touch with their lenders as soon as possible. To assist, lenders might be prepared to provide short-term payment plans, loan modifications, or different repayment options.
- Beginning of Recovery Measures
The lender may take recovery steps to recoup the unpaid balance if the borrower fails to settle the default within the allotted time. This could entail taking legal action to secure a judgment against the borrowing party or looking for legal remedies including foreclosure, repossession, or other legal actions. The particular steps that are done are determined by the kind of loan, the collateral that is being used, and the relevant rules and regulations.
- Foreclosure or Repossession
When a loan is backed by property, such as a car or piece of real estate, the financial institution has the right to take back or foreclose on the collateral to pay off the obligation. Foreclosure is the process of selling the property to pay off the debts that remain, whereas repossession is the taking of the asset that was pledged as security. To effectively protect their interests, borrowers who have to deal with foreclosure or repossession should consult a legal expert. Then proceed with their suggestions and consider all of their options.
When Does an Account Turn Into a Non-Performing Asset (NPA) or Bad Debt?
The term “NPA” refers to non-performing assets. Any advance or loan that has been past due for more than 90 days is considered a non-performing asset in India, according to the RBI.
Bottom Line
Financial behavior and the credit scores of customers can assist banking institutions and other lenders in assessing the likelihood of an imminent default. Although every lender has a different process, generally speaking, it involves trying to alter some terms to make it easier for the customer to repay the loan, including extending the payback period.
Recovering loans guarantees that lenders and borrowers involved in the loan recovery process are on the same track and that RBI criteria are adhered to. These rules also encourage moral behavior, fairness, and transparency. You, as a borrower, must be aware of your rights and the recovery processes to guarantee a fair and mutually beneficial attitude when managing loan defaults and recovery efforts.
Both borrowers and lenders should fully understand the RBI’s guidelines for recovering personal loans. These regulations protect all parties’ rights and concerns while promoting transparent, equitable, and moral debt recovery procedures. To successfully deal with loan default and recovery activities fairly and courteously, borrowers must be aware of their rights and the recovery process.