KARACHI, Nov 4: The recovery process of consumer loans that has been under severe criticism after the stories of excesses by the banks recovery teams appeared in the media, the State Bank of Pakistan on Tuesday announced parameters for the recovery and asked banks not to harass the borrowers and their family members.

The banks are facing default in the consumer loans and are trying to get support from the State Bank for recovery. However, the poor record of excesses by their ‘recovery teams’ which are often accused of harsh behaviour has forced the SBP to streamline the loan recovery process through a set of detail instructions.

The SBP said it had addressed the grievances of the borrowers by preventing them from harassment at the hands of the recovery teams and set minimum standards for banks and Development Financial Institutions (DFIs) for recovery of loans.

These standards have been set for various types of consumer financing facilities including credit cards, housing loans, auto and personal loans, etc.

The SBP through a circular has asked all banks and DFIs to adopt the minimum standards for the recovery of consumer loans.

“Before proceeding for debt recovery from their borrowers, the bank and DFI will ensure to provide him or her all information relating to payments fallen due,” said the SBP circular.

A minimum 14-day notice will be served to the borrower through letter or SMS advising him/her to make overdue payment, before a visit to his or her residence or business place is undertaken in a lawful manner to negotiate recovery of the outstanding amounts. Advance notice will be required to be served to the customer when bank or DFI staff picks up the payment and if it is done on customer’s request then it should be properly recorded.

“Banks and DFIs in their recovery efforts will ensure that (a) the borrowers are not contacted at an inconvenient time (b) proper disclosure of identity, name of the bank and the purpose of call is provided (c) only lawful and acceptable business language and professional attitude is adopted in establishing such contact,” said the circular.

Banks and DFIs will also ensure that (a) collection calls are properly recorded (b) borrowers are contacted at the given address or phone numbers and in case they cannot be contacted, at alternate address or phone number obtained through collection efforts (c) “Visit Reports” will be kept on record in the form of hard copy or on electronic collection systems for at least six months (d) collection staff will not harass their family members, said the SBP.

However, necessary information could be obtained from family, friends or third party of the borrower if he or she is not in contact for 30 days after the first missed payment.

Banks and DFIs will give 14 days written notice before repossessing the leased vehicle on breach of an agreement or default on repayment by the borrowers, banks or DFIs and the recovery agencies employed by the bank and DFI are advised to allow the borrower to take possession of their valuables and goods out of the vehicle.

Banks and DFIs have been advised to ensure that (a) their recovery staff do not transfer or misuse any personal data of customers or borrowers without their prior approval (b) any information of customer or borrower provided to the collecting staff are properly documented.

The banks and DFIs will ensure that the recovery agencies employed by them must be enrolled with Pakistan Banks’ Association (PBA) once the arrangements in this regard are in place.

In order to effectively control the functions of recovery and the human resources engaged in this process, banks and DFIs would ensure to frame a code of lawful conduct for recovery staff, introduce a well-defined mechanism for addressing complaints against the recovery staff, and undertake a periodical review of their recovery procedures and mechanism for improvement in line with law, market practice and development.

Also, engage suitably qualified staff in recovery and provide them necessary training.

And regularly monitor the activities of recovery staff and agencies.