Mumbai: Concerned over growing litigations against banks and high-handedness of recovery agents, Reserve Bank today issued strong warning to banks to check such practices or be barred from engaging such services.

"I am hopeful our threat would work," RBI Governor Y V Reddy told reporters here after unveiling the busy season credit policy for 2007-08. An urgent need has risen to review the "policy, practice procedure" involved in the engagement of recovery agents by banks in India, he said, adding that banks are urged to follow prescribed specific considerations while engaging them.

The directive to banks follow a series of complaints received by the apex bank regarding abusive practices followed by the recovery agents. "This invites serious supervisory disapproval, which includes imposing temporary or permanent ban if such practices persisted," he said. Reddy said an operational circular in this regard will be issued by November 15.

"Banks that give loans, no doubt have a right to recover them but when they use less than proper means we become responsible for system as a whole to ensure such abusive practices are prevented," Reddy said. He also said banks would have adjustments and safeguards in place to prevent such practices.

Reddy directed banks to use their own staff to recover loans if their agents were found to be adopting abusive practices in certain areas.

Source : PTI