Banks to incur additional cost of Rs 800 cr for training program

The Reserve Bank of India recently released its second draft guidelines for recovery agents in which it has proposed that banks should tie up with the Indian Institute of Banking and Finance (IIBF) or organize program in their own training colleges to ensure that every agent passes the exam conducted by IIBF during a one-year period.

In its norms the RBI has clearly defined “agents” to include not just agencies engaged by banks and their agents or employees but also bank employees.

If the banks comply with the RBI proposed loan recovery norms banks might have to spend up to Rs 800 crore training close to one million employees.

The biggest complaint of the bankers is the additional cost that they would have to spend on 100 hours of training, which could be anything between Rs 600 crore and Rs 800 crore.

NIS Sparta, a division of Mudra Communications Pvt. Ltd., a Reliance ADA group organization. which provides training facilities for financial sector, charges around Rs 6,000 per employee.

Another institute run by a public sector bank said the 100-hour training costs Rs 6,500 per employee, which does not include the cost of study material and meals.

Study material, including brochures and CDs it costs to around Rs 500, and if meals are included for 14 days and other costs add up to around Rs 1,000, taking the total package amount to nearly Rs 8,000 per employee.

According to a banker recovery being one of the high-pressure jobs, most of the employees are unwilling to put in long term in the collection department of private banks, resulting in high stir and, therefore, more training needs.

In the public sector banks departments of employees keep changing which means training almost the entire workforce over a period of time.

In the meantime, the Indian Banks' Association (IBA), which represents the interests of both state-owned and private banks, has written to the RBI seeking the clarification on the term “recovery”.

Most of the large banks have customer services departments who do the follow-up with customers who fail to pay their credit card or personal or car loan dues on the due date.

“Before the matter is referred to the collection department, which usually takes a month, it is this department which follows-up. We do not know if even this will constitute recovery activity and if we need to train our customer service executives too,” said a senior banker.

However the IBA has submitted its opinion to RBI, which expects the release of final guidelines shortly.

Banks have also expressed their apprehension over including the telephone numbers of recovery agents in the notice and authorization letter sent to defaulting borrowers.

“These recommendations were listed in the first draft as well. We send our feedback but it seems to be falling on deaf ears. In this day and age how can you expect a bank to make public the number of its recovery agent,” said the collection head of a private bank.

“Today, customers can opt for call-barring facilities. What can a bank do if the customer refuses to receive calls? Unless RBI wants us to not pursue defaulters there is no reason why it should include such a suggestion,” said the banker.

Banks have also said the proposal to implement Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act) to reclaim assets will delay the recovery process which in turn depreciates the value of the asset.

“Under Sarfaesi the bank will have to wait for 90 days which means three installments before it can pursue the defaulter. The bank will also have to send the borrower an official letter before taking any action. This causes delay in recovery and the value of the asset also depreciates,” said a banker.