RBI Proposes to Prohibit Banks from Disabling Mobile Phones of Defaulting Borrowers

Reserve Bank Proposes Strict Norms for Loan Recovery Practices

The Reserve Bank has proposed strict norms to curb aggressive loan recovery practices in the country. As part of these efforts, the central bank has suggested that banks cannot disable or restrict the mobile phones of defaulting borrowers to recover personal, car, or home loans.

However, banks will be allowed to restrict or disable functionalities of a defaulting borrower's mobile device, provided the device is financed by the lender. This means that if a borrower has taken a loan to purchase a mobile phone, the bank can restrict its functionalities in case of default.

The Reserve Bank has proposed strict norms on conduct-related matters in the recovery of loan dues and engagement of recovery agencies amid complaints of borrowers being harassed, including through social media platforms and the use of abusive language.

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To prevent harassment of borrowers, the Reserve Bank has proposed that banks cannot deploy technology-based mechanisms to restrict or disable mobile device functionalities, except in cases where the device is financed by the bank. Even in such cases, the bank cannot deploy the mechanism to block the device until the associated loan has become 90 days past due and the borrower has not cured the default despite being served notices.

In addition, banks cannot restrict or disable essential functionalities of a mobile device, such as access to the internet, incoming calls, emergency SOS features, and receipt of emergency government or public-safety notifications.

The Reserve Bank has also proposed that banks should document the time and number of calls made by their employees or recovery agents to the borrower or guarantor for recovery of loan dues. Additionally, banks should ensure that there is a recording of the content/text of the calls made by the employee or recovery agent to the borrower or guarantor.

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The revised draft amendment directions on 'Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents' also emphasize that banks' employees or recovery agents should not engage in any harsh methods towards collection or recovery. Harsh methods include the use of minatory or abusive language, the use of social media for posting video/audio recordings or personal details of the borrower/guarantor, and excessively calling/messaging the borrower/guarantor.

The Reserve Bank proposes to implement the norms from October 1, 2026. The draft also emphasizes that banks should put in place a policy on collection/recovery of loan dues, including taking possession of a security, by their own employees or recovery agents. The policy should cover procedures to be followed and penal actions to be taken in case of non-compliant recovery agencies or their agents.

The Reserve Bank has issued separate draft directions for small finance banks, regional rural banks, cooperative banks, non-banking financial companies, and housing finance companies. Stakeholders can provide their comments on the revised directions till May 31.