RBI changes loan recovery rules to protect borrowers
RBI issues comprehensive code for recovery agents Banks must reveal agent’s identity Before you continue reading How financially free are you? Most people overestimate their
RBI issues comprehensive code for recovery agents Banks must reveal agent’s identity Before you continue reading How financially free are you? Most people overestimate their financial freedom. Discover your Financial Freedom score through a quick survey Calculate My Score RBI mandates fair treatment of borrowers Recovery calls must be recorded RBI regulates mobile phone locking for loan recovery Rules for taking possession of security Professional behaviour required from recovery agents Behavioral rules for loan recovery agents RBI prohibits harassment during loan recovery If you've ever worried about aggressive loan recovery calls or surprise visits by recovery agents, the Reserve Bank of India (RBI) has introduced a new set of rules aimed at making the recovery process more transparent and fair. Effective January 1, 2027, the central bank has issued a comprehensive framework that lays down how banks must engage recovery agencies, communicate with borrowers and conduct recovery proceedings. The directions replace the earlier recovery-related provisions under the Responsible Business Conduct Directions, 2025. Here are some of the key points of the RBI’s new directions about loan recovery.The RBI has directed banks to put in place a code of conduct for both their own employees involved in recovery and external recovery agents.
Where a recovery agency has been engaged, banks must obtain an undertaking from the agency confirming that its recovery agents will comply with the code of conduct prescribed by the bank.The RBI says recovery agents should be trained and undergo the prescribed Indian Institute of Banking and Finance (IIBF) Debt Recovery Agent training.The RBI says in its directions that banks should inform a borrower about the recovery agent/agency. It should notify if the agency changes and should also inform the borrower if the contract of the agency is terminated.The directions require banks to ensure that borrower information shared with recovery agencies is limited only to what is necessary for recovery-related work. Banks must also have safeguards, including penal provisions, to prevent the misuse of customer information.As per the RBI directions, banks need to record recovery calls and must maintain the record for at least six months. While banks should ensure that customer information is not misused, they must also inform customers that their call is being recorded.Banks that finance smartphones or other devices are allowed to restrict certain device functions only for loans that have been taken to buy those devices. However, the RBI has put strict restrictions for that such as, loan should be 30 days overdue before such restrictions start, and full restrictions can start only after 60 days loan overdue.However, in that case also, banks can stop essential functions such as incoming calls, SMS, SOS, work-related functionality, etc.Banks are also not allowed to access contacts, SMS, photos, call logs, or location data of the borrower.Once the loan is paid, the RBI directions say, the device must be unlocked within one hour of payment.In cases of wrongful restrictions or delay in reversal of restrictions applied on the functionalities of a mobile device after realisation of dues from the borrower, where the reason for the delay is attributable to the bank, the lender shall compensate the borrower at the rate of Rs 250 per hour till the wrongful action is remedied.
The BriefWire