The Reserve Bank of India (RBI) has proposed a fresh set of rules to tighten the conduct of banks and recovery agents during loan collection. The revised
draft directions, released on Wednesday, May 20 focus on borrower protection, transparency, and accountability in recovery practices followed by regulated entities. One of the key proposals makes it clear that lenders cannot immediately block or disable mobile phones financed through loans in the event of payment defaults. The central bank has laid down strict conditions before such action can be taken. The RBI has recommended stricter behavioural standards for both recovery agents and bank officials involved in loan collection. Financial institutions have been advised to adopt a board-approved recovery policy covering all aspects of collection practices and borrower engagement. Under the draft framework, banks would also be required to compensate customers if losses occur because of unfair or improper recovery measures. The regulator has further proposed mandatory certification from the Indian Institute of Banking and Finance (IIBF) for recovery agents. In addition, lenders will have to publicly disclose the details of empanelled recovery agencies on their official websites and mobile applications. Borrowers must also be informed before the first recovery visit takes place. Borrowers To Get More Protection Against Harassment The proposed rules place strong emphasis on protecting borrowers from intimidation and harassment. Banks would not be allowed to transfer recovery cases if borrower grievances remain unresolved. The RBI has also directed lenders to record calls made by recovery agents and preserve the recordings for at least six months. Incentive structures encouraging aggressive or coercive recovery practices have been barred under the draft norms. Recovery agents will only be allowed to contact borrowers between 8 am and 7 pm. They must carry valid identification and an authorisation letter during visits. The draft directions also prohibit agents and banks from contacting borrowers during sensitive occasions such as bereavement or marriage ceremonies. The RBI has proposed safeguards before lenders can restrict access to financed devices such as smartphones. According to the draft norms, banks can disable devices only after a loan remains overdue for 90 days. Further, lenders must issue a 21-day notice along with an additional seven-day warning period before taking such action. If a device is wrongfully blocked, borrowers would be entitled to compensation of Rs 250 per hour. The central bank had first introduced these draft guidelines in February after observing instances of aggressive recovery tactics by agents. At the time, the RBI had stated that intimidating borrowers or humiliating them publicly would qualify as “harsh methods.” Additionally, the regulator noted that recovery agents should not use minatory or abusive language, send ‘inappropriate’ messages on phones or social media, or repeatedly call borrowers and guarantors. The RBI said the updated framework is intended to promote responsible lending and ensure fair treatment of borrowers while streamlining recovery procedures across financial institutions.
