No abusive calls, no phone disabling: What borrowers need to know about proposed loan recovery rules

The Reserve Bank on Wednesday proposed a comprehensive framework to regulate the conduct of banks and recovery agents, including a ban on accessing borrowers' mobile phone data and stricter safeguards against harassment during loan recovery.

The draft norms, which will come into effect from October 1, 2026, after public consultation.

Under the proposed directions, banks will be required to put in place a board-approved policy covering the collection and recovery of loan dues.

The RBI said the policy should cover "trigger(s) for initiation of recovery process, graded actions as per an escalation matrix for loan recovery, code of conduct for employees and recovery agents, recovery of loan dues in case of demise of borrower", among other matters.

The policy must also include provisions for compensating borrowers and guarantors for any loss caused by recovery-related actions that are inconsistent with the directions.

The RBI has also sought to tighten the engagement of third-party recovery agencies.

Banks will have to ensure that only agents certified by the Indian Institute of Banking and Finance (IIBF) or institutes tied up with it are deployed for recovery work.

Recovery agencies will be subject to due diligence, periodic review, and monitoring to ensure compliance with outsourcing and conduct norms.

Banks will be required to maintain an up-to-date list of all empanelled or engaged recovery agencies on "all prominent channels through which it engages with customers, viz., branches / offices or digital platforms such as website, mobile app".

The list must include details such as the agency's name, type, correspondence address, period of engagement, purpose of engagement and assigned geographical areas, and must be updated within seven calendar days of any change.

Borrowers and guarantors must be informed at least one day before the first in-person visit by a recovery agency.

The draft directions set out extensive protections against harassment and misuse of borrower information.

Agents and bank staff can contact borrowers only between 8 am and 7 pm unless specifically requested otherwise, and must interact in a civil manner while maintaining “decency and decorum”.

The RBI will explicitly prohibit a range of coercive practices, including abusive language, excessive calling, anonymous threats, harassment of relatives and colleagues, and posting personal details or recordings of borrowers on social media.

The RBI said banks cannot use technology to disable or restrict functions of a borrower's mobile phone as a recovery tool, except when the loan was specifically taken to finance that device.

The central bank clarified even in such cases, the device cannot be locked until the loan is overdue by 90 days and borrowers have been given advance notices and opportunities to cure the default.

Certain essential functions, including "access to internet, incoming calls, emergency SOS features, and receipt of emergency Government or public-safety notifications", cannot be disabled under any circumstances.

In cases of wrongful restriction or delays in restoring functionality, "the lender shall compensate the borrower at the rate of ₹250 per hour till the wrongful action is remedied".

The central bank also made it clear that banks and their agents cannot access, use, obtain or retain any data stored on a borrower's mobile device for loan recovery or any other purpose.

Banks will also be required to document the time and number of recovery calls, record the content of those calls, and preserve the records for six months, or until disposal of any court proceedings if the matter is sub judice.