A New Framework for Fair Recovery
In a significant move to protect borrowers, the RBI has consolidated various existing instructions into a single, robust framework titled 'Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents'. These new directions, which
were announced on August 6, 2026, and will be implemented from January 1, 2027, apply to all commercial banks and other lending institutions. The primary goal is to strengthen governance, ensure the fair treatment of borrowers, and hold lenders accountable for the actions of their recovery agents. The implementation date was extended to give lenders sufficient time to update their systems, train staff, and ensure full compliance with the new, stricter standards.
Key Prohibitions to Prevent Harassment
The new rules explicitly ban several coercive and intimidating practices. Recovery agents are forbidden from using abusive or threatening language, making repeated or anonymous calls, or publicly shaming borrowers on social media. Contacting a borrower's relatives, friends, or colleagues to apply pressure is also strictly prohibited. Furthermore, agents cannot misrepresent the debt or the legal consequences of non-payment. A critical rule sets specific hours for contact: agents can only call or visit borrowers between 8:00 a.m. and 7:00 p.m., unless the borrower has explicitly agreed to a different time. All telephonic conversations between agents and borrowers must now be recorded and preserved for at least six months.
Clearer Rules for In-Person Visits
When it comes to in-person recovery, transparency is now paramount. Before any recovery proceedings begin, banks must inform the borrower about the specific recovery agency and the authorised agent assigned to their case. During a visit, the recovery agent must carry and present a valid identity card and an authorisation letter from the bank. This letter must include the contact details for both the recovery agency and the bank's dedicated grievance redressal officer. This allows the borrower to verify the agent's identity and provides a clear channel for reporting any misconduct. Lenders are also required to publish an updated list of their empanelled recovery agencies on their websites.
New Safeguards for Device Locking
The RBI has also introduced specific rules for technology-enabled recovery, particularly the remote locking of financed devices like mobile phones. Lenders are barred from locking a borrower's personal devices for the recovery of an unrelated loan. For loans taken specifically to finance a device, restrictions can only begin after the loan is at least 30 days past due, and a full lock is only permissible after 60 days of non-payment. Even when a device is locked, lenders must ensure that essential functions like incoming calls, SMS, and emergency SOS services remain active. Critically, the rules prohibit banks and their agents from accessing any personal data on a borrower's device, such as contacts, photos, or call logs, for recovery purposes.
What Lenders Are Now Required to Do
The onus is now squarely on the lending institutions to ensure compliance. Every bank must adopt a board-approved recovery policy that details the entire process, from when recovery can be initiated to how financially distressed borrowers should be treated. Banks are also responsible for conducting due diligence on recovery agencies and ensuring that all agents are properly trained and certified by the Indian Institute of Banking and Finance (IIBF). Previously exempt entities have been given a one-year window from the implementation date to get their agents certified. To handle complaints, banks must establish a dedicated grievance redressal mechanism specifically for issues related to recovery practices.
