RBI Proposes Tighter Rules on Recovery Agents and Device Loan Defaults

The Reserve Bank of India has proposed draft rules that would allow banks and non-banking financial companies (NBFCs) to restrict certain mobile phone functions if borrowers default on loans used to buy those devices, as per PTI reports. 

The draft directions are for regulating recovery practices and setting clearer rules for lenders and recovery agents. The proposed framework is to come into force from October 1, 2026. 

Restrictions Only for Device Loans 

Under the proposal, lenders can impose restrictions only when the loan was specifically taken to finance the purchase of the mobile device. The loan agreement must clearly mention the possibility of restrictions, the process involved, timelines for repayment, and grievance redress options available to borrowers. 

The RBI has also proposed a phased process before restrictions can be applied. Lenders would first need to issue a notice after the loan account becomes 60 days overdue, giving borrowers at least 21 days to clear dues. 

A second notice with another 7-day repayment window would also be mandatory. Restrictions can be imposed only after the account becomes 90 days past due. 

Essential Functions Cannot Be Disabled 

The draft norms state that lenders cannot completely block access to mobile phones. Certain services must continue to function, including incoming calls, internet access, emergency SOS features, and government or public safety notifications. 

The RBI has also directed lenders to follow a gradual approach while restricting device functions instead of fully disabling devices immediately. 

According to the draft rules, restricted functions must be restored within 1 hour after the borrower clears pending dues. If there is a delay or wrongful restriction, lenders would have to pay compensation of ₹250 per hour until the issue is corrected. 

Recovery Rules and Borrower Protection 

The central bank has barred lenders from accessing or storing data available on borrowers’ devices under any circumstances. Any software used to restrict phone functions must also be removed once the loan is fully repaid. 

The draft framework also proposes stricter conduct standards for recovery agents, including limits on calling hours and restrictions on abusive language, intimidation, public humiliation, or social media harassment during recovery efforts. 

Read More: SEBI Issues Show Cause Notice To 6 Capital Group-Linked FPIs in Ketan Parekh Case! 

Conclusion  

The proposed framework sets timelines for recovery action, compensation for wrongful restrictions, and limits on lender access to borrower data. 

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