RBI proposes overhaul of loan recovery norms; draft rules ban harassment, cap calls to 8am–7pm

The Reserve Bank of India on Thursday issued draft rules to streamline conduct-related norms for recovery of loans and engagement of recovery agents across all regulated entities.

“Currently, different sets of instructions are applicable to different categories of Regulated Entities (REs) with respect to the engagement of recovery agents and conduct related aspects of loan recovery,” the central bank had said in its ‘Statement on Developmental and Regulatory Policies’ on February 6.

“It has now been decided to review and harmonise all the extant conduct related instructions on engagement of recovery agents and other aspects related to recovery of loans,” it added.

The draft directions, issued for public comments, propose comprehensive instructions covering borrower protection, conduct of lender employees and recovery agents, due diligence, training, code of conduct, grievance redressal and monitoring mechanisms.

“Accordingly, the Reserve Bank of India has today issued the draft Amendment Directions for public comments,” the RBI said.

Under the proposed framework, lenders will be required to put in place a policy on recovery of loans and engagement of recovery agents, which will cover eligibility and due diligence criteria, performance standards, inspection and audit, control mechanisms and penal action in case of non-compliance.

"An employee/recovery agent shall interact with the borrower in a civil manner. Further, he / she shall maintain decency and decorum during visits to the borrower's place for collection / recovery of loan dues," the RBI said.

The draft also mandates that banks disclose details of empanelled recovery agents across branches and digital platforms and inform borrowers in writing whenever a recovery case is assigned or the agent is changed.

The RBI said lenders must ensure “fair treatment to borrowers during recovery process” and put in place mechanisms to identify customers facing repayment difficulties and guide them on available recourse.

What practices will be barred?

The central bank said recovery agents and bank staff will be barred from adopting coercive practices, noting that employees or agents “shall not engage in any harsh methods towards recovery”, including use of abusive language, excessive calling, intimidation, harassment or making misleading representations.

Contact with borrowers will be allowed only between 8 am and 7 pm, while recovery calls will have to be documented and recorded, with lenders taking “reasonable precautions such as intimating the borrower / guarantor that the conversation is being recorded”.

In the draft rules, the central bank also proposed that the loan recovery efforts should not be undertaken at "inappropriate occasions" such as bereavement in the family or such other calamitous occasion, or marriage functions and festivals.

In cases where the subject matter of the borrower's loan dues is subjudice, the bank shall exercise "utmost caution" in referring the matter to its employee or recovery agents, it said.

Formal training

The RBI is also mulling to make it compulsory for the recovery agents to undergo the 'debt recovery training' conducted by the Indian Institute of Banking and Finance (IIBF).

The draft directions also lay down detailed safeguards for taking possession of mortgaged or hypothecated assets, stressing that recovery or enforcement of security interest “shall be done only by following due process of law”.

The draft follows an announcement to this effect made by Governor Sanjay Malhotra last week while announcing the monetary policy review. In the past, there have been instances including the death of the next of kin of a borrower during a visit by a loan recovery agent in Bihar, which had prompted the RBI to ask lenders to be more sensitive.

While detailed instructions on recovery agents were earlier applicable mainly to scheduled commercial banks (excluding regional rural banks) and housing finance companies, the RBI said it has now decided to issue “comprehensive instructions to all regulated entities on conduct related matters in recovery of loans and engagement of recovery agents”.

The proposed amendments are slated to come into effect from July 1, 2026, after finalisation of the public consultation process.