RBI proposes stricter loan recovery norms; bars lenders from blocking devices
- ByStartupStory | May 26, 2026
The Reserve Bank of India (RBI) has proposed a stricter framework to regulate loan recovery practices and aims to curb harassment and coercive tactics used by recovery agents.
The central bank on Thursday released draft directions “Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents” and invited public comments on the proposal.
According to the draft norms, it prohibits banks, NBFCs, and their recovery agents from using intimidation, threats, abusive language, or public humiliation when dealing with borrowers. The framework also prohibits the use of social media platforms to shame or humiliate borrowers.
The proposed norms are likely to impact digital lending and instant loan apps operating in partnership with RBI-regulated banks and NBFCs.
Under the proposed directions, recovery agents are permitted to contact borrowers between 8 AM and 7 PM unless specifically permitted by the borrower. They will also be restricted from repeatedly calling borrowers or contacting family members, friends, and colleagues.
The RBI has proposed that regulated entities ensure recovery agents are properly trained and certified through recognised institutions. Lenders will also be required to maintain stronger oversight over outsourced recovery operations and put in place board-approved recovery policies and grievance redressal mechanisms.
In another significant move, the draft framework introduces safeguards around the disabling of financed mobile phones by lenders. Financial institutions will not be allowed to block smartphones of borrowers unless such conditions are clearly mentioned in the loan agreement and adequate notice has been provided to the borrower.
Even in such cases, essential services including incoming calls, emergency communication and alerts must continue functioning on the device.
The proposed framework comes amid increasing concerns around aggressive recovery practices adopted by some lenders and collection agencies. The draft directions focus on strengthening borrower protection and promote fair recovery practices across regulated financial entities.
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