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Demystifying Debt Collections in India

Published on January 24, 2024

Debt. It’s a word that can send shivers down anyone’s spine, especially in India where the rise of credit cards, easy loans, and BNPL schemes has made borrowing more accessible than ever. But what happens when those borrowed rupees turn into unpaid dues? Enter the world of debt collection.

For many Indians, navigating the world of debt collection can be confusing, difficult and scary. Fearmongering tactics, unclear information, and pressure to settle quickly can leave borrowers feeling vulnerable and unsure of their rights. So, let’s demystify on what debt collection means in India and empower you with the knowledge to deal with it effectively.

What is Debt Collection?

It’s the process by which a lender recovers unpaid debts from a borrower. This can involve banks, loan providers, or even individuals you owe money to. When you fail to make your payments, your lender might assign your debt to a collection agency or company, a specialised entity entrusted with recovering the dues.

Debt collection is known as as debt recovery, debt management, portfolio recovery, credit collection, credit recovery, delinquency management and account receivables collections among other terms.

Why does Debt Collections Matter?

  • Economic Growth: Efficient debt collection promotes healthy credit circulation, fueling sustainable economic growth. It incentivizes responsible borrowing and repayment, fostering a culture of fiscal discipline that lays the foundation for a robust and thriving economy.
  • Financial Stability: Timely debt recovery safeguards the financial stability of both lenders and borrowers. Lenders can continue offering credit products, while borrowers avoid further financial hurdles due to escalating debt.
  • Reduces Defaults: Effective collections deter borrowers from intentional defaults, protecting lenders from financial losses and minimising bad debt burdens.

The Stages of Collections

Lenders categorise debts into ‘buckets’ like a financial filing system, based on how long they’ve been outstanding and how likely they are to be recovered. Each lender follows a slightly different approach based on the bucket:

  1. Bucket 1: The “Oops, I forgot!” Bucket: Missed a payment or two? No worries, it happens! The lender gently reminds you, like a friendly nudge. No pressure, just a “remember that bill!” note.
  2. Bucket 2: The “Let’s Talk” Bucket: Still haven’t paid? It’s time to chat. Think of it as a financial therapy session. Explain your situation and explore options, like maybe adjusting your payment schedule.
  3. Bucket 3: The “Serious Business” Bucket: Things aren’t working out. Missed payments pile up, and the lender gets stricter. More calls, maybe even letters. Listen up, this is important! Ignoring it won’t make it disappear.
  4. Bucket 4: The “Last Resort” Bucket: No progress? This is the red zone. Legal action might be taken, which could mean court, property, or even wage involvement. Seek legal help if you reach this bucket, things just got real.

Debt Recovery Laws in India

  1. The Fair Practices Code for Debt Collectors, 2015: This code regulates the conduct of debt collectors, prohibiting harassment, threats, and misleading practices to safeguard borrower rights.
  2. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993: This empowers banks and financial institutions to recover debts through DRTs, facilitating speedy and efficient recovery.
  3. The Indian Contract Act, 1872: This act governs contractual obligations, including loan agreements, outlining essential legal principles for debt recovery processes.

Current Landscape of Collections in India

  • Rise of Technology: Digital platforms and advanced data analytics are transforming collections. Automation streamlines communication, enhances tracking, and improves efficiency.
  • Customer Centricity: Lenders and collection agencies are increasingly adopting ethical and transparent practices, prioritising personalised borrower communication and offering flexible solutions.
  • Regulatory Scrutiny: Increased awareness of borrower rights and stricter regulations are shaping the collections landscape, ensuring fair and responsible practices.


Debt collections, though often misunderstood, play a vital role in India’s financial ecosystem. Recognising its importance and legal frameworks, empowers both lenders and borrowers to navigate the process effectively. As technology and borrower-centric approaches evolve, India’s debt collections landscape is poised for a future of fairness, efficiency, and responsible financial conduct.

Remember, knowledge is power. By understanding debt collections, your rights, and the legal landscape, you can navigate this complex process with confidence and seek solutions that work for you.