The Reserve Bank of India (RBI) has issued a comprehensive framework governing how commercial banks recover loans. This comprises rules around loan recovery and asking financial and non-financial institutions to ensure lenders and guarantors are treated with due respect during the recovery phase. They set out when lenders and agents may contact borrowers, prohibit abusive recovery methods, and define the conditions under which loan-financed mobile devices can be restricted. The rules apply to commercial banks but exclude Small Finance Banks, Payments Banks, Regional Rural Banks, and Local Area Banks. The rules will come into effect from January 1, 2027, under the Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Fourth Amendment Directions 2026.
RBI Sets Time Limits on Loan Recovery Calls to Distressed Borrowers
Lenders will only be allowed to contact or visit borrowers between 8 a.m. and 7 p.m. They must avoid inappropriate occasions such as a bereavement in the family or a medical emergency. Recovery agents must also carry identity cards and authorisation letters and interact civilly. The Reserve Bank of India has also prohibited employees and recovery agents from using unsuited language or posting videos, audios, or personal details of borrowers and guarantors on social media. Financial institutions and other lenders will have to adhere to rules, including penalties, to avoid employees and recovery agencies from misusing the customer information.
They will also have to note the time and number of recovery calls made to borrowers and guarantors. The contacts made by recovery agents and employees must be noted and maintained. Banks will have to maintain recordings of calls made by borrowers and guarantors to the telephone or mobile number provided by the financial institution. The RBI also asked lenders to ensure that recovery targets and incentive structures do not push employees to resort to unwanted recovery methods.
Lenders must adhere to the policy regarding the collection and recovery of loan dues. It will also be inclusive of taking possession of assets through employees or recovery agents. The policy must be clear about the triggers for starting recovery action, authorized measures under an escalation matrix, and a code of conduct for recovery personnel. It will also have to deal with cases involving the death of a borrower and a structured framework for borrowers facing financial problems.
For financially troubled borrowers, lenders will need documented pre-escalation engagement and help on available resolution options. Loan agreements would clearly mention the process of taking possession of security. This includes the respective notice period before acquisition, circumstances where that period can be waived off, the procedures for taking possession, and a last opportunity for the borrower to repay the amount before the security is auctioned. The agreements must also include how possessions can be returned and the procedures for auctioning the security.
When Banks Can Restrict a Loan-Financed Phone
The framework also governs device financing. Banks may restrict or disable functionality on a smartphone, tablet, or computer only where the device itself was financed through the loan. Even then lenders should not levy restrictions after a missed payment. The borrower must first receive due notice, mentioned in the loan agreement, including context about the gradual restrictions that may be inflicted.
The device cannot be restricted through technological mechanisms until the loan is 30 days past due. It also includes the fact that the borrower has not paid the required amount despite the notice. Restrictions are however graduated. Partial restrictions can begin only once the account is 30 days past due, with full restrictions permitted only after 60 days. Essential functions are protected throughout, including incoming calls, SMS, emergency SOS features, and any functionality required for the borrower’s employment.
The Reseve Bank of India has also introduced compensation for borrowers who face improper restrictions on a financed device, or delays in restoring functionality after repayment. Where the unfair constraint or delay in reversing is attributed to the bank, the lender must compensate the borrower ₹250 per hour until the problem is resolved. Compensation is capped at an amount equal to the loan itself. Taken together, the directions set boundaries on how lenders pursue dues and how far they can go in using technology against borrowers who financed their devices.
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