Fill in the blanks. NBFC shall not resort to _______ for recovery of loan amount. Options: 1. Undue Harassment 2. Peaceful ways 3. RBI 4. Police
Answer (1)
The correct answer to fill in the blank is: 1. Undue Harassment .
Non-Banking Financial Companies (NBFCs) are financial institutions that provide various banking services but do not hold a banking license. They are important players in the financial system of a country as they offer financial products such as loans, credit facilities, investment products, and retirement planning.
NBFCs, just like banks, have the right to recover loans provided to borrowers. However, in doing so, they must adhere to ethical practices and guidelines set out by regulatory authorities such as the Reserve Bank of India (RBI).
Why 'Undue Harassment' is Correct:
Ethical Considerations: NBFCs are expected to maintain ethical practices in all their dealings with customers. Using harassment as a recovery strategy violates ethical norms and can damage the reputation of the financial institution.
Legal Guidelines: Regulatory bodies like the RBI provide guidelines and codes of conduct that financial institutions must follow when recovering loans. These guidelines ensure that recovery is done in a legal and non-intrusive manner.
Customer Relationships: Using undue harassment can sour the relationship between the NBFC and its customers. It can lead to customer dissatisfaction and loss of trust.
Consequences: Harassment tactics may have legal consequences for the financial institution, with penalties or restrictions imposed by regulatory bodies.
Overall, resorting to 'Undue Harassment' is not only unprofessional but also potentially harmful for the long-term sustainability and credibility of the NBFC.
