Recovery Strategy and Credit Counselling
The same tactic does not work on every borrower. Match the approach to the reason for default.
A recovery strategy is the plan for each overdue account: who to contact first, how firmly, and which solution to offer. Credit counselling is advice that helps a struggling borrower understand their debts and find a realistic way to repay.
They belong together because the same tactic does not work on every borrower. A salaried borrower who simply forgot last month's credit card bill needs a reminder. A shopkeeper whose business has collapsed needs a plan. Treating both the same way wastes time on one and pushes the other into default.
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Can Pay or Will Pay? Four Kinds of Borrower
A common collections framework: sort each borrower by their ability to pay and their willingness to pay.
Able and willing
Typical situation
Forgot, or a short cash gap
Strategy
Polite reminder; make paying easy
Willing but not able
Typical situation
Job loss, illness, crop failure
Strategy
Listen, refer to the lender for restructuring or settlement, offer credit counselling
Able but not willing
Typical situation
Has income but delays or disputes
Strategy
Firm, factual follow-up; lender may escalate to legal remedies
Neither able nor willing
Typical situation
Deep distress or deliberate default
Strategy
Escalate to the lender early; legal route or settlement is the lender's call
| Borrower type | Typical situation | Strategy |
|---|---|---|
| Able and willing | Forgot, or a short cash gap | Polite reminder; make paying easy |
| Willing but not able | Job loss, illness, crop failure | Listen, refer to the lender for restructuring or settlement, offer credit counselling |
| Able but not willing | Has income but delays or disputes | Firm, factual follow-up; lender may escalate to legal remedies |
| Neither able nor willing | Deep distress or deliberate default | Escalate to the lender early; legal route or settlement is the lender's call |
Building a Strategy for One Account
- 1
Check the stage
How many days overdue? RBI's SMA bands (1-30, 31-60, 61-90 days) tell you how urgent it is. Early cases need reminders; cases near 90 days need a firm plan.
- 2
Find the reason
Ask what changed. The reason decides the strategy far more than the amount does.
- 3
Match the option to the reason
Part-payment now, a promise-to-pay date, or a request to the lender for restructuring or a one-time settlement.
- 4
Record and follow up
Note every promise and call back on the date. A missed promise is the signal to escalate.
- 5
Escalate through the lender
Legal action, settlement terms and waivers are decided by the bank or NBFC, never by the agent.
What Credit Counselling Means Here
Credit counselling is not collecting. It means helping the borrower see their full position: how much they owe to whom, what they can actually pay each month, which debt to clear first, and what the lender may offer. Good counselling turns "I can't pay" into "I can pay ₹2,000 a month".
RBI's 2008 guidelines encouraged banks to use credit counsellors where a borrower deserves sympathetic consideration. RBI's August 2026 amendments go further for commercial banks and NBFCs: from 1 January 2027, every recovery policy must include a structured framework for borrowers in financial distress, with documented engagement before escalation and guidance on the resolution options available.
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Targets Cannot Justify Pressure
RBI noted in 2008 that very stiff recovery targets and high incentives were pushing agents towards intimidation. Its 2027 rules say a lender's targets and incentive structures, including those in its contract with a recovery agency, must not induce harsh recovery practices. A strategy that only works through pressure is not a strategy RBI allows.
How the DRA Exam Tests This
Going by the syllabus wording, expect questions that describe a borrower and ask for the best approach. The right answer matches the approach to the reason for default: counselling and a referral for the borrower who lost a job, firm follow-up for the one who can pay but won't.
Two traps come up. First, options where the agent promises a waiver or settlement on the spot; only the lender can approve those. Second, treating credit counselling as a softer form of collection. Counselling is about the borrower's whole financial position, not just this one loan.
FAQs
What is credit counselling for loan defaulters?expand_more
Advice that helps a borrower list their debts, work out what they can realistically repay, and understand the options a lender may offer, such as restructuring or a settlement.
Can a recovery agent offer a settlement or waiver?expand_more
No. An agent can pass the borrower's request to the lender. Settlement terms and waivers are decided by the bank or NBFC under its own policy.
What should an agent do if the borrower genuinely cannot pay?expand_more
Listen, record the reason, and refer the case back to the lender for options such as restructuring. From 2027, RBI requires lenders' recovery policies to cover borrowers in financial distress.
What is a good recovery strategy?expand_more
One that sorts borrowers by their ability and willingness to pay, uses reminders early, offers realistic plans to those in difficulty, and leaves legal escalation to the lender.
Next steps
- Settlement & OTSarrow_forward
- Recovery Procedurearrow_forward
- SMA Categoriesarrow_forward
- Defaulter's Rightsarrow_forward
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