By Anurag Mehra
India’s borrowing culture is undergoing a rapid transformation. The surge in Buy Now, Pay Later (BNPL) schemes, instant loan apps, and the easy availability of personal credit has brought millions of first-time borrowers into the fold. While this has expanded access to finance, it has also created a rising tide of consumer debt.
For many, the temptation to borrow beyond their repayment capacity proves costly. Loan defaults are increasingly common, and with them comes a darker reality: harassment by recovery agents.
A Ground Reality Far from Guidelines
The Reserve Bank of India (RBI) has laid down strict guidelines for fair loan recovery practices. These rules prohibit intimidation, public shaming, and threats. However, on the ground, the story is starkly different. Many banks and NBFCs outsource recoveries to agents who operate with little accountability. Small borrowers, often unaware of their rights, are pitted against powerful financial institutions.
The social stigma around loan defaults compounds the problem. In India, defaulting is often equated with dishonesty or fraud. Recovery agents exploit this perception, using tactics like calling up friends and relatives, defaming borrowers publicly, or visiting workplaces to humiliate them. Such harassment has, in extreme cases, driven borrowers to take their own lives.
The Missing Legal Framework for Individuals
When India introduced the Insolvency and Bankruptcy Code (IBC) in 2016, it was hailed as a game-changer for corporate debt resolution. For the first time, there was a structured and time-bound process to deal with bad debts in the corporate sector. However, while the law also contains provisions for individual bankruptcy and insolvency, those rules have not yet been notified.
This is a glaring gap. Corporate India enjoys a legal mechanism to restructure or write off debt, but individuals, no matter how dire their situation, are left without such protection. If a salaried professional, gig worker, or small entrepreneur becomes insolvent, there is no formal process to declare bankruptcy, negotiate with creditors, or get legal protection from recovery action. This lacuna must be addressed urgently if we are to stop recovery harassment and the tragic suicides of stressed borrowers.
Why Legal Protection Is No Longer Optional
With the imbalance of power between lenders and borrowers, legal protection has become a necessity, not a luxury, for India’s credit-stressed population. Borrowers need a shield against illegal recovery tactics and a structured path to settle debts without fear of harassment.
However, not all borrowers are willing or able to engage in long, costly court battles. This is where Alternative Dispute Resolution (ADR) methods, such as mediation and arbitration, come into play.
The ADR Advantage
ADR is not about letting borrowers escape their obligations; it is about ensuring repayment is negotiated lawfully, fairly, and with dignity. Through mediation, an impartial facilitator helps borrowers and lenders discuss repayment options without hostility. This could include restructuring EMIs, reducing interest rates, extending loan tenure, or settling the loan for a lump sum.
Arbitration, on the other hand, provides a binding resolution without the delays and expenses of traditional litigation. Both methods are confidential, protecting borrowers from public embarrassment and preventing lenders from escalating recovery pressure.
By creating a neutral and balanced environment, ADR removes the fear factor from debt resolution. It allows lenders to recover dues efficiently while ensuring borrowers are not pushed to the brink by harassment.
The Road Ahead
As India’s consumer credit market continues to expand, the demand for borrower-focused legal services will only grow. Fixing the gaps in laws like the IBC, ensuring that RBI’s recovery guidelines are enforced, and promoting ADR as a mainstream debt resolution tool are all critical steps.
India’s economy thrives when credit flows freely, but for that to continue, borrowers must be as protected as lenders. A humane, lawful, and balanced credit ecosystem is not just an economic necessity; it’s a moral one.
(The author is the Founder of Expert Panel)
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