RBI proposes curbs on disabling borrowers’ phones for loan recovery

The draft norms also tighten oversight of recovery agents, mandate call recordings and detailed logs, prohibit abusive practices, and require lenders to restore device access quickly while compensating borrowers for delays or wrongful restrictions.

The Reserve Bank of India has proposed new rules aimed at tightening recovery practices adopted by banks and financial institutions, particularly concerning the use of technology-based mechanisms against loan defaulters. The central bank has made it clear that lenders cannot disable or restrict the basic functioning of a borrower’s mobile phone, tablet, or similar device to recover personal, car, or home loans. The move comes amid growing concerns over aggressive recovery methods and complaints of harassment faced by borrowers.

However, the regulator has allowed a limited exception. Banks may restrict or disable functionalities of a mobile device only if the device itself was financed through a loan from the same lender. Even in such cases, the action can be taken only after the loan account becomes 90 days overdue and the borrower fails to clear the dues despite receiving proper notices.

Safeguards for borrowers and accountability measures

The RBI has also mandated that essential phone services such as emergency calls, internet access, SOS features, and public safety alerts must not be blocked under any circumstances. Once a borrower clears the dues, lenders must restore device access within one hour. In case of delays or wrongful restrictions, banks will be required to compensate borrowers at a rate of ₹250 per hour until the issue is resolved.

The draft guidelines further strengthen monitoring of recovery agents and bank staff. Lenders must maintain detailed records of calls made to borrowers or guarantors, including call content and recordings. Harsh recovery practices such as abusive language, social media harassment, excessive messaging, or public disclosure of borrower details have been strictly prohibited.

The central bank has also directed lenders to frame clear policies for loan recovery operations, including penalties for non-compliant recovery agents. These norms are part of revised draft directions on the conduct of regulated entities, issued after reviewing stakeholder feedback on earlier proposals released in February. The final rules are expected to come into effect from October 1, 2026, after public consultation.