RBI curbs coercive loan recovery practices

Borrowers who default on personal, home or vehicle loans no longer have to worry about the risk of their mobile phones or laptops being disabled by banks as a recovery tool, besides recovery agents hounding them.

Issuing this strict instruction, the Reserve Bank of India (RBI) has prohibited recovery agents from using abusive, threatening or intimidating language. Anonymous calls, repeated harassment, public humiliation or threats involving a borrower’s family, assets or reputation are strictly forbidden. Besides restricting the use of device-locking technology, the rules also lay down fresh standards for recovery agents, the handling of borrower information, and the use of technology during the recovery process.

The RBI has barred banks from turning off borrowers’ laptops, tablets, and mobile phones except in cases where the device itself was financed by the lender.

Under its new loan recovery framework, banks and regulated lenders will have to follow stricter rules on how they contact borrowers, what recovery agents can say, when they can call and how they conduct field visits. Recovery agents are prohibited from using abusive, threatening or intimidating language. Anonymous calls, repeated harassment, public humiliation or threats involving a borrower’s family, assets or reputation are strictly forbidden.

Effective 1 January 2027, the RBI’s new guidelines on ‘Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents’ have been notified. The new guidelines lay down detailed rules governing how lenders and recovery agents can communicate with borrowers, conduct field visits, and even use technology to recover dues.

The new norms prohibited loan recovery agents from using harsh measures, such as use of abusive language, excessive calling or use of violence. Under the revised norms, recovery-related calls and visits will generally be permitted only between 8 am and 7 pm. Calls or visits outside these hours will be allowed only if the borrower has specifically requested or authorised them.

The agents cannot resort to intimidating or publicly humiliating the borrowers or their relatives, referees, friends or co-workers. The RBI has also instructed recovery agents to exercise sensitivity in exceptional circumstances. Borrowers should not be approached during situations such as bereavement, medical emergencies or family celebrations like weddings.

There is a new layer of transparency around physical visits too. Before the first in-person visit by a recovery agency, the borrower must be informed at least one day in advance. The bank must provide details of the agency assigned to the case.

Borrowers should ordinarily be contacted at a place of their choice. A recovery agent can visit the borrower’s home or workplace if no preference has been given, or if the borrower repeatedly fails to appear at the chosen location.

And if someone does turn up, they cannot simply say they are from the bank and demand money.

Recovery agents must carry an identity card, an authorisation letter and the relevant notice. The authorisation letter must also include contact details for the agency and the bank’s grievance officer.

The misuse of social media has also been addressed. Recovery agents cannot publish or circulate a borrower’s personal information, photographs, videos or audio recordings to pressure or shame them into repayment.

The RBI has further tightened accountability for lenders by requiring them to closely supervise recovery activities. Banks must record recovery-related conversations and maintain details such as call timings and phone numbers. These records are generally required to be preserved for at least six months.

Such documentation will help resolve disputes if borrowers allege misconduct by recovery agents. The RBI has made it clear that banks cannot escape responsibility by blaming outsourced agencies. Even when recovery operations are assigned to third parties, lenders remain fully accountable for ensuring compliance with regulatory standards. Banks have also been directed to ensure recovery agents receive proper training. Additionally, lenders must review their incentive structures to ensure they do not encourage aggressive or unethical recovery practices.

Another major part of the new framework is privacy. Recovery agents should get only the information they actually need to recover the dues. Banks have been directed to put safeguards in place to prevent misuse of borrowers’ personal information.

The RBI has laid down rules for lenders that use technology to remotely restrict a financed smartphone, tablet or laptop. First, the loan must have been specifically taken to finance that device. A lender cannot take a normal personal loan and use it as a reason to remotely disable your existing phone.

There is also a waiting period. A device cannot be remotely restricted as soon as an EMI is missed. Restrictions can begin only after the loan has remained overdue for at least 30 days.

A complete device restriction can be imposed only after the account has remained overdue for 60 days. Even then, the phone cannot simply become a useless piece of hardware. Incoming calls, SMS, emergency communication and functions needed for work and employment must continue to remain available. Lenders also cannot use the technology to access unrelated personal information such as contacts, photographs, videos, call logs, SMS messages or location history.