RBI lifts restrictions on recovery via outsourcing

The Reserve Bank of India (RBI) on Wednesday lifted restrictions related to Mahindra & Mahindra Financial Services (M&M Finance) on recovery operations via third party collection agents.

The lifting of restrictions followed submissions made by M&M Finance and its pledge to strengthen recovery practices and outsourcing arrangements, while tightening the process of onboarding third-party agents and strengthening its accountability framework

The RBI action came after reports of a 27-year-old pregnant woman being allegedly crushed to death on 15 September, 2022 in Jharkhand, by a tractor being driven by a recovery agent acting on behalf of M&M Finance.

Sources had earlier reported that the 27-year-old was trying to stop the loan recovery agent from seizing her differently-abled father’s tractor–financed by M&M Finance–over unpaid dues to the extent of ₹1.2 lakh.

Mahindra Group later confirmed the incident with Mahindra Group Chairperson Anand Mahindra calling it a “terrible tragedy".

Anish Shah, MD and CEO of Mahindra Group, said the company will “investigate this incident from all aspects and will also undertake an examination of the practice of using third-party collection agencies that has been in existence".

The central bank defines ‘outsourcing’ as an NBFC’s use of a third party (either an affiliated entity within a corporate group or an entity that is external to the corporate group) to perform activities on a continuing basis that would normally be undertaken by the NBFC itself.

According to 2017 regulatory guidelines, outsourcing of any activity by an NBFC does not diminish the lender’s obligations, and those of its Board and senior management.

Shares of MMFSL had plunged over 20% following the order in September, before recouping those losses by December 2022.