Debt Recovery is Turning Violent

On a dusty road in Saptari in December 2025, two bank employees were dragged out of their vehicle. They were beaten, smeared with soot, and held for hours. Their “crime”: they were following up on overdue loan payments on behalf of their bank.

This was not the first time anger was vented toward bank employees. Verbal abuse and threats are not new. But 2025 marked a disturbing shift from abuse and threat to physical attacks.  In June, a branch  manager was assaulted during a discussion on arrears.  In December, recovery staff were subjected to public humiliation and detained while performing official duties.

These are not isolated personal disputes. When  recovery staff are attacked, three pillars are shaken at once: the banking system’s ability to enforce contracts, the rule of law, and the financial discipline that keeps  credit markets functioning. If borrowers believe intimidation can replace repayment, non-performing loans will rise. Lenders will respond by tightening credit. This will lead to interest rate hike, and small businesses and households, which rely on formal finance, will have to pay the price.

Violence also pushes disputes out of courts and regulatory systems and onto the street. There,  outcomes depend on power,  not fairness. 

Nepal is not alone. In many countries, debt stress has occasionally turned into attacks  on lenders and frontline staff. Without strong protections and credible  standards of conduct, routine recovery can turn into confrontation. The government must keep loan recovery lawful, safe, and respectful for everyone.

The hidden drivers

The violence now surfacing is not due to a single factor. It is better understood as the result of 
pressures that build over time, until an ordinary recovery visit becomes  an emotional flashpoint.

One of the reasons behind this is the lack of financial literacy. Many borrowers sign loan 
agreements without fully understanding compounding interest, penalty structures, or the 
consequences of missed installments. Some overestimate future income, while others underestimate risk. Credit is often  treated as a windfall rather than a long-term obligation.  When expectations collapse, frustration is often  directed at the messenger, not the mistake.

Poor communication makes matters worse.  After default, borrowers often avoid banks out of shame, fear, or confusion. Silence becomes the norm until the situation is already severe. Borrowers may not know their restructuring options, the documents required, or the steps that banks 

must follow before legal escalation. A sudden visit, or a poorly written notice can feel like punishment rather than process. Economic stress is also rising. A slow economy, uncertain cash flows, inflation, and job insecurity have reduced repayment capacity—even among willing borrowers. For many households and small enterprises, default is not a tactic; it is the result of shrinking margins and weak demand. Under such pressure, frustration looks for an outlet.

Rumors and political assurances can further distort a borrower’s behavior. Periodic claims about 
interest waivers, loan write-offs, or blanket relief—credible or not—can encourage some borrowers to delay repayment. In unstable periods, misinformation spreads quickly and weakens norms of compliance,  especially if enforcement appears inconsistent.

Recovery  practices themselves can inflame tensions. Across South Asia, including Nepal’s microcredit ecosystem, borrowers have alleged abusive  collection  methods: late-night calls, surprise visits to homes  or workplaces, public shaming, threats, and misuse of social media. Even when a loan is legally enforceable, methods that humiliate borrowers or ignore dignity create resentment and fear. Recovery  must be firm, but it should never rely on intimidation.

Weak enforcement and protection mechanisms further deepen the problem. Slow legal resolution, 
uncertain penalties, and inconsistent policing erode confidence on both sides. Borrowers may 
believe consequences are distant or negotiable. Banks and staff may feel the state cannot guarantee their safety. Such situations embolden willful defaulters and trap hardship cases in confrontation.

Why public humiliation matters

Public humiliation  of bank staff is not just a workplace issue; it is a systemic threat. Banking depends on confidence that contracts are meaningful,  disputes can be resolved legally, and institutions can operate without mob coercion.

First, such incidents undermine the rule of law and institutional authority. Loan agreements are 
legally binding, and recovery is meant to follow regulatory standards and, when needed, judicial 
processes. When  staff are attacked publicly, the message is that legal authority can be overridden 
by intimidation.

Second,  humiliation  erodes repayment culture and creates moral hazard. If borrowers observe that 
threats can silence enforcement, repayment shifts from obligation  to negotiation by pressure. This 
encourages strategic default, raises non-performing loans, and increases credit risk on bank balance sheets. Over time, lenders respond by tightening credit and raising rates, while avoiding 
sectors perceived as politically or socially volatile.

Third, violence damages operational effectiveness and staff morale. Add physical risk and public 
degradation, and institutions face higher turnover in sensitive roles, slower recoveries, and more 
cautious field engagement. Delayed  recoveries weaken cash flows, complicate risk management, and reduce credit availability. The result is a quieter but real form of exclusion: creditworthy clients face stricter screening because institutions are trying to reduce exposure.

Fourth, reputational harm extends beyond individual banks. When  such episodes circulate widely, 
they shape perceptions that the financial system is weak, politicized, or unable  to enforce 
contracts. Depositors may worry about stability, investors question governance, and external partners may reassess risk.

Strengthening systems before failure

Preventing violence in loan recovery requires more than condemnation. It requires a system that protects staff, safeguards borrower dignity, and restores credibility to enforcement. It depends on predictability, professionalism, and lawful process.

First, ensure legal protection and certainty of consequences. Assault, abduction, or intimidation 
of bank staff during official duties  must be treated as serious  criminal offences. Response and prosecution should be swift and consistent. When consequences are real, violence becomes a high-risk choice rather than an option.

Second,  standardize recovery conduct. Banks, guided by regulators and industry associations, 
should adopt clear protocols on notice  periods, transparent escalation stages, and a preference 
for digital communication and formal channels before physical visits. Staff should be trained not 
only in documentation and negotiation but also in conflict de-escalation and personal safety. In higher-risk  cases, coordination with local authorities can reduce exposure.

Third, deter abuse  on both sides. Zero tolerance must apply equally—no violence against staff, and no harassment of borrowers. 

Oversight mechanisms—complaint channels,  audits of collection  behavior, and penalties for misconduct—must be credible. Similarly, recovery should rely on lawful steps and documented communication, not humiliation.

Fourth, intervene early. Most confrontations occur after loans are already distressed. Banks should 
invest in early warning systems to identify repayment stress and offer restructuring, rescheduling, or advisory support before arrears become irreversible. This reduces surprise visits and lowers the temperature of enforcement.

Finally, invest in borrower education. Financial literacy is a form of risk control. Banks, the 
central bank, local governments, and media can collaborate to explain loan terms, repayment planning, and legal processes in clear language. For larger or higher-risk  loans, mandatory pre-loan counselling  can help borrowers understand obligations and realistic repayment capacity.

The other side of the story

Any analysis that focuses only on borrower aggression may sound biased. Nepal’s recent credit expansion has also revealed shortcomings within lending institutions. During boom periods, competition encourages optimistic valuations, loose underwriting, and an overreliance on collateral—especially land—often at the expense of cash-flow analysis. When the economy slows and markets freeze, collateral can become illiquid and refinancing  options narrow, even for borrowers willing to cooperate.

Enforcement methods also shape outcomes. Unannounced visitors to homes  or workplaces can appear unprofessional and intimidating, particularly  for borrowers already under  stress. Disrespectful language, public shaming, or treating borrowers like criminals can turn financial pressure into personal humiliation. Conflict then escalates not only over money, but over the perceived loss of dignity. Banks must recognize this reality. Conduct is part of risk management.

These institutional failures help explain anger. They do not justify violence. Tolerating  attacks  
on recovery staff creates moral hazard, invites systemic instability, and normalizes  coercion
over lawful dispute resolution. The solution  is not to choose sides. It is to repair the system so 
that enforcement is firm but fair, and relief is structured but accountable.

The banking system can regain balance through three commitments: a credible  rule of law, 
professional recovery standards, and transparent borrower support. Without that balance,  debt will 
keep spilling into social conflict, damaging  bank finances,  staff safety, and the wider economy. When economic distress meets weak institutions and broken trust, debt stops being just a contract and becomes a trigger. Institutions concerned should act before that trigger becomes routine.

(This opinion article was originally published in February 2026 issue of New Business Age magazine.)