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Informist, Wednesday, May 20, 2026

 

--RBI issues revised draft directions on loan recovery agents 

--RBI seeks views on revised draft norms on loan recovery agents by May 31 

--RBI moots new loan recovery norms to be effective Oct 1 vs Jul 1 earlier

 

NEW DELHI – The Reserve Bank of India Wednesday issued revised draft directions on the conduct of regulated entities in recovering loans and engaging recovery agents. The regulator now proposed the norms come into effect on Oct. 1, from the earlier Jul. 1 mooted in the draft issued in February.

 

Stakeholders had given substantial feedback on the initial draft, including a proposal for lenders to disable or restrict the use of financed mobile devices, the central bank said in a release. In the revised draft, the RBI allowed lenders to deploy technology-based mechanisms to recover its loan dues arising from financing such a device 90 days after the loan becomes due. The proposal from lenders had led to controversy when it was reported by media.

 

The loan agreement must explicitly permit lenders to restrict or disable the mobile device after issuing a notice for loan recovery, the new draft norms said. Regulated entities must provide the notice 60 days after the loan is due, with 21 days given to the borrowers. Another notice must be given after the first one expires, with another seven days given to the borrower to remedy the default, the RBI said. The regulator sought comments on the revised draft norms by May 31.

 

Any lender using these technology-based mechanisms to restrict mobile device use must adopt a graduated approach rather than disabling the device. Essential functions like access to internet, incoming calls, emergency SOS features and public-safety notifications cannot be blocked, the revised draft said. These restrictions must be reverted within one hour of the customer curing the default, with compensation of INR 250 per hour in case of non-compliance, the regular said.

 

Regulated entities also cannot access, obtain, use, or retain the data on a mobile device for loan recovery or any other purposes. The mechanism used for restricting device use must be permanently uninstalled after the loan is repaid, with the borrower also have the right to prepay the loan either partially or fully, the RBI draft said. Moreover, lenders must ensure a robust grievance redressal mechanism is put in place once mobile device use is restricted. 

 

The RBI said that the new provisions will apply to borrowers in default and unless explicitly stated, also to loans collected from borrowers not in default and during the normal course of business. The revised draft retained the need for regulated entities to put in place a policy on recovery of loans, engagement of recovery agents for recovery of loan dues, and taking possession of securities.

 

Lenders must train and conduct due diligence on the background of their recovery agents, with a code of conduct for both recovery agents and bank employees. The revision added tweaks to the definitions of recovery agencies and agents to include any entities engaged in the recovery of loan dues other than an employee. This will now be enforced regardless of their designation by the regulated entity, the RBI proposed.

 

Lenders must disclose information on recovery agencies to customers both publicly and notify an individual when such an agent is visiting to collect a loan. A change in agent or a termination of an agent must also be notified to the borrowers, the revised draft said. These recovery agents must be discouraged by penal provisions to discourage misuse of customer information by the lenders. Grievances against agents must be disposed of before continuing the recovery of a loan, the regulator proposed.

 

The RBI also laid down a code of conduct for employees of lenders and recovery agents, which included restricting harsh methods of collection or recovery. Regulated entities must put in place a management structure to periodically monitor and control the activities of its recovery practices and agents. 

 

Lenders must also give the details of a grievance redressal officer in any recovery-related communications with borrowers. "A bank shall have a dedicated mechanism for redressal of recovery related grievances. The details of this mechanism shall be provided to the borrower by including the same under the loan agreement," the RBI's proposed directions said.  End

 

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

 

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