NBFCs are known as the Non-Banking Financial Corporation. NBFCs are regulated by the Reserve Ba...
Recovery Mechanism for NBFC is not covered under the SARFAESI Act. Though RBI has strengthened NPA Norms, it has not laid out clear guidelines either on recovery mechanism or basically the provisions which can entail an NBFC to take action against the defaulters.
Most NBFC’s are unable to recover their debt portion. A lot of cases surmounting to Crores of funds are being dragged to court every year by NBFC’s.
The panel in the RBI working group has recommended Act i.e. SARFEASI to be even extended to NBFC’s as well. Right now the applicability is just confined to:
*SAFEASI Act was enabled to facilitate banks & financial institutions in order to realize their long-term assets, improve recovery by possession mechanism & thereafter selling & attaching them for reducing NPA burden.
Every NBFC should lay down appropriate grievance redressal mechanism within the organization to settle the disputes between the company & the customers.
*It is a matter of fact to be analyzed whether the Recovery Mechanism for NBFC is badly hit due to the scaling down of the credit appraisal mechanism or due to the documentation problems or due to the repaying habits of the borrower or due to the inadequate collection process in NBFC.
It encompasses the collection & management as well as processing of the activities involved in fund transfer. It calls for designing an appropriate collection policy by the organization.
The basic objective while formulating the collection policy is to ensure the earliest possible payments on receivables without any customer loss through an ill will.
Prompt collection of accounts tends to reduce the investment required to carry receivables and the costs associated with it & the ratio of bad debts is likely to decrease.
A chance is given to all the borrowers if they are facing any problem in repaying the EMI’s on time. They can approach the NBFC and ask to restructure the loan to enable the smooth repayment process.
Just a single missed the opportunity and it can bring huge losses for the registered NBFC. The RBI guideline states that the NBFC’s have to give a reasonable amount of time to pay the due amount along with an opportunity of being heard. In case of any demise like death, serious ill-health or accident the NBFC gives time lag to the customers and his family.
The provisions which can entail an NBFC to take action against the defaulters must always have a clear picture of your financial health. They should be aware of when you can resume your payments on time.
Pulling one’s hands from unnecessary expenses can add a sum of amount to your savings and help to repay your debts on time. It’s not only a moral obligation but also a legal responsibility to pay off your loan dues completely and that too on time as agreed between the lender and the borrower.
A few easy ways can sort the situation temporarily but still, it is important to ensure that you pay all your dues and your creditworthiness is not harmed in any way.
Recommended Article: Applicability of SARFAESI Act for NBFCs.