RBI said, the ban can become permanent in case of persistent abusive practices followed by the agents.

Misbehaviour of recovery agents has become a big irritant in the banking sector. As banks pay the agents fees, which is a certain percentage of recovered amount, the recovery agencies resort to illegal practices to recover the amount and to maximise fees.

In its mid-term review the central bank said in view of rise in the number of litigations against banks for engaging recovery agents in the recent past, it is felt that the adverse publicity could affect reputation of the banking sector. So, there is an urgent need to review the policy, practice, procedure involved in the engagement of recovery agents by banks.

HDFC Bank chairman Deepak Parekh said a licensing system should be started to employ recovery agents. He said behaviour of agents has to be monitored and a system should evovle towards this end.