The American Repossessor

Key changes are expected in vehicle repossession norms to ease the process for banks to take back cars and two-wheelers from owners that default on loan repayments.

These changes are being discussed by leading private and government-owned banks through the Indian Banking Association, the Society of Indian Automobile Manufacturers and the Reserve Bank of India [ Get Quote ].

Chief among the important changes under discussion is a proposal to record phone conversations between the banks (and their recovery agents) and defaulting customers and retain proofs of registered letters reminding customers of late payment.

Second, all field visits by bank staff and recovery agents to the residence or office of the defaulting customer will be recorded in a log book.

Three, local police stations will be educated on the legal rights of the banks to take automatic possession of cars or two-wheelers if the customer has not paid the equated monthly instalment or EMI for three consecutive months.  Loan officers in banks say most police stations are unaware of this basic right to which customers agree when they sign the loan application documents. This lack of awareness has led to numerous criminal cases being filed against private banks

These changes are expected to correct a major flaw in repossession norms — the lack of evidence with the police to re-take a vehicle from a defaulting owner. As a result, banks have no option but to appeal to the courts, which can be a long-drawn affair.
Banking officials involved in preparing the draft repossession norms, however, say it may take a while to implement these because they  involved the security agencies

Last month, the RBI released its first set of guidelines on vehicle repossession for non-banking financing companies or NBFCs. Sources in the NBFC industry said the Finance Industry Development Council, which represents the NBFCs, is also party to the  current discussions.

“The banks and NBFCs have submitted a set of 30 guidelines that will help us to use acceptable force to go after defaulters’ vehicles that rightfully belong to us,” an NBFC executive said.

The difficulties in repossessing vehicles prompted several banks and NBFCs to sharply reduce their exposure to vehicle financing. About two years ago, around 90 per cent of all cars bought at dealerships were financed by banks. That proportion is down to 65 per cent. For two-wheelers, 40 per cent of purchases are financed, down from a high of 65 per cent in the same time-frame.