Union Finance Minister Nirmala Sitharaman on Monday urged both public and private banks to exercise compassion and sensitivity while dealing with loan repayment processes.

During the Question Hour in the Lok Sabha, she addressed concerns related to the repayment of loans taken by small borrowers and emphasised the need for a considerate approach.

“I have heard complaints about how mercilessly loan repayments have been followed up by some banks. The Government has instructed all banks, both public and private, that harsh steps should not be taken when it comes to the process of loan repayment, and they should approach the matter with humanity and sensitivity in mind,” she said

The Madras High Court had previously observed the matter, stating, “If banks have to recover outstanding loan amounts, the same has to be recovered by the procedure established by law. Coercive methods of recovery by private agents, if appointed by banks, are not permissible. The banks certainly cannot use muscles power to recover the loan amount.”

It came after a PIL alleging coercive methods used against farmers was disposed of.

To reinforce fair practices, the Reserve Bank of India (RBI) issued a circular back in 2008, warning banks of potential consequences, including a ban on engaging recovery agents, if complaints against them were received. The RBI also urged banks to review their recovery mechanisms regularly and provide feedback for improvement in the guidelines.

The RBI has been proactive in curbing harassment by recovery agents employed by banks and non-banking financial companies through the issuance of regular circulars.

Recently, the RBI fined RBL Bank Ltd `2.27 crore for failing to comply with certain directives on loan recovery agents. The central bank detected “deficiencies in regulatory compliance” during its examination of complaints received against the Mumbai-based lender’s recovery agents between the financial years 2018-19 and 2021-22.