The Reserve Bank of India (RBI) on Thursday barred non-banking finance company, Mahindra & Mahindra Financial Services (MMFSL) from carrying out any recovery or repossession activity through outsourcing arrangements.

The central bank, invoking provisions under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, directed MMFSL to immediately cease carrying out any recovery or repossession activity through outsourcing arrangements, till further orders. However, the said NBFC may continue to carry out recovery or repossession activities, through its own employees. The release stated that the action is based on certain material supervisory concerns observed in the said NBFC, with regards to the management of its outsourcing activities.

The action comes days after a pregnant woman was crushed to death under the wheels of a tractor, owned by her father, was forcibly taken away by recovery agents affiliated to MMFSL in the Hazaribagh district of Jharkhand.

From Mahindra UVs to tractors to non-Mahindra products, the company has diversified into a financial services provider with a whole suite of financial solutions tailored to the under-served customer in under-penetrated rural markets.

While Mahindra Group chairperson Anand Mahindra was quick to tweet his condolences to the bereaved family, Anish Shah, managing director and chief executive officer of Mahindra Group, parent of the non-banking finance company, also put out a statement stating that the company will investigate the incident from all aspects and review the practice of "using third-party collection agencies that have been in existence."

The central bank had come out with a circular on August 12 that stated that the ultimate responsibility for outsourced activities vests with regulated entities (REs) and they are, therefore, responsible for the actions of their service providers including recovery agents. The circular stated that "any violation in this regard by REs will be viewed seriously."

The high handedness of NBFCs follows the recent incidents of customers of Chinese loan apps committing suicides. Single-minded ruthlessness for profits amid a challenging macro environment that has impacted rural incomes is expected to create a tough situation for both borrowers and finance companies operating in the hinterlands.

Mahindra Finance RBI

RBI bars Mahindra Finance from outsourced recovery