New rules require lenders and recovery agents to follow strict conduct standards, including restrictions on calling hours, use of abusive language and sharing borrowers’ personal information
New Delhi: The Reserve Bank of India (RBI) has introduced stricter rules governing loan recovery practices to ensure that borrowers and guarantors are treated fairly and are protected from harassment.
Under the RBI’s Commercial Banks – Responsible Business Conduct (Fourth Amendment) Directions, 2026, which will come into effect on January 1, 2027, banks and non-banking financial companies (NBFCs) will have to ensure that their employees and recovery agents follow prescribed standards while recovering loan dues.
Recovery Calls Restricted to Specific Hours
Lenders and their recovery agents will generally be required to contact or visit borrowers and guarantors only between 8:00 a.m. and 7:00 p.m.
They must also avoid making recovery calls or visits during inappropriate or sensitive situations, including family bereavements and medical emergencies.
The rules are aimed at preventing aggressive recovery practices and ensuring that borrowers are treated with dignity throughout the recovery process.
No Abusive Language or Public Shaming
The RBI has directed lenders to ensure that employees and recovery agents do not:
- Use abusive, threatening or inappropriate language while communicating with borrowers.
- Publish or circulate audio or video recordings of borrowers or guarantors on social media.
- Share borrowers’ or guarantors’ personal information through social media or other inappropriate channels.
- Engage in practices that could publicly shame or intimidate borrowers.
Lenders will also be required to establish safeguards and penalty provisions to prevent employees and recovery agencies from misusing customer information.
Banks Must Maintain Records of Recovery Calls
The RBI has placed greater emphasis on documentation and accountability during loan recovery.
Banks must record the time and number of calls made by employees or recovery agents to borrowers or guarantors regarding outstanding dues.
They must also maintain records of the content or text of calls made by recovery agents to borrowers and calls made by borrowers or guarantors to the bank’s designated telephone or mobile numbers.
Recovery Policies Must Be Clearly Defined
Lenders will have to maintain a formal loan collection and recovery policy. The policy may include procedures for taking possession of secured assets through the lender’s employees or authorized recovery agents.
The policy must cover areas including:
- Triggers for initiating recovery proceedings.
- A graded escalation mechanism for recovery action.
- A clear code of conduct for employees and recovery agents.
- Procedures for handling loan recovery following the death of a borrower.
- A framework for borrowers facing financial distress.
- Pre-escalation engagement with financially distressed borrowers.
- Information about available loan-resolution options.
Recovery Targets Cannot Encourage Harsh Practices
The RBI has also directed banks to ensure that their recovery targets and incentive structures do not encourage employees or recovery agencies to adopt aggressive or harsh recovery methods.
This provision is intended to ensure that pressure to meet collection targets does not result in harassment or improper treatment of borrowers.
Restrictions on Disabling Mobile Devices
Lenders will be permitted to restrict or disable a mobile device—such as a phone, tablet or laptop—only where the device itself has been financed through a loan provided by the bank.
This limits the circumstances in which lenders can interfere with the functionality of a customer’s device during recovery proceedings.
Rules for Taking Possession and Auctioning Assets
Loan agreements involving secured assets must clearly specify the procedures that lenders will follow before taking possession.
These agreements should include:
- The notice period before possession is taken.
- Circumstances in which the notice period may be waived.
- The procedure for taking possession of the secured asset.
- The borrower’s final opportunity to repay before the asset is sold or auctioned.
- Procedures for returning the security to the borrower.
- Procedures governing the sale or auction of the security.
Stronger Protection for Borrowers
The RBI’s revised framework is designed to create greater transparency, accountability and fairness in loan recovery. By regulating recovery timings, communications, customer-data handling and asset-repossession procedures, the new directions seek to prevent harassment while allowing lenders to recover legitimate dues through a structured process.
The provisions will take effect from January 1, 2027, giving regulated lenders time to update their recovery policies, employee guidelines and agreements accordingly.
