In a move aimed at strengthening borrower protection, the Reserve Bank of India (RBI) has proposed a stricter framework to regulate loan recovery practices and curb harassment, intimidation, and coercive collection methods used by recovery agents.
The central bank has released draft directions titled “Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents” and has invited public feedback on the proposed guidelines.
Under the draft framework, banks, NBFCs, and their recovery agents will be prohibited from using threats, abusive language, intimidation, or public humiliation while dealing with borrowers. The proposal also bans the use of social media platforms to shame or pressure individuals over loan repayments.
The new rules are expected to have a significant impact on digital lending platforms and instant loan applications that operate in partnership with RBI-regulated financial institutions.
According to the draft norms, recovery agents will only be allowed to contact borrowers between 8:00 AM and 7:00 PM unless the borrower specifically permits otherwise. They will also be restricted from making repeated calls or contacting borrowers’ family members, friends, or colleagues.
The RBI has further proposed mandatory training and certification requirements for recovery agents through recognized institutions. Regulated entities will be required to maintain stronger oversight of outsourced recovery operations and establish board-approved recovery policies along with effective grievance redressal mechanisms.
One of the key proposals addresses the practice of disabling financed smartphones. Financial institutions will not be allowed to block borrowers’ mobile devices unless the condition is clearly stated in the loan agreement and adequate notice has been provided.
Even where device restrictions are permitted, essential services such as incoming calls, emergency communication, and critical alerts must remain functional.
The proposed framework comes amid growing concerns over aggressive recovery practices in the lending ecosystem and seeks to promote fair, transparent, and responsible recovery standards across regulated financial entities.
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