No surprise visits, threat calls: RBI lays down strict rules for loan recovery
RBI issues guidelines governing behaviour of banks, recovery agents in contacting loan defaulters; rules to kick in from Jan 1, 2027
One of the biggest fears of people who have taken loans is the situation they would end up in if they fail to repay it – repeated calls from the bank, threat of police action, intimidation tactics, and surprise visits by recovery agents even late in the evening to your house are a few to name.
But no more. Under the stricter rules of the Reserve Bank of India (RBI), banks cannot recover loans from borrowers at the cost of the latter’s dignity and privacy.
Rules kick in from Jan 1, 2027
The central bank has laid down a fresh set of rules that will govern how banks and recovery agents behave while contacting borrowers for pending loan amounts. This includes when borrowers can be contacted, what recovery agents should ask of them, how banks must monitor these agents and what compensation borrowers would receive if the RBI rules are violated.
Also read: RBI bars banks from disabling mobile devices of defaulting borrowers
The new rules aim to establish a uniform framework for the “conduct of banks in recovery of loan dues and engagement of recovery agencies” across commercial banks and other regulated agencies.
The rules will be applicable from January 1, 2027 onwards.
RBI issued the final print of the guidelines after examining stakeholder feedback on the draft directions released in May this year.
No harsh methods
Under the new rules on recovery practises, RBI mandates that agents and bank employees “shall not engage in any harsh methods” while collecting or recovering loan dues.
It bars agents from using threatening, intimidating or abusive language, posting videos, audio recordings or personal details of borrowers on social media, sending inappropriate messages through phones or social media, and making repeated calls or messaging borrowers to contact them beyond the prescribe hours.
The regulator also cautions against making anonymous and threatening phone calls to borrowers, harassing borrowers, their family members, relatives, referees, friends or colleagues, publicly humiliating borrowers, threatening violence or damage upon them and making false or misleading claims about the debt or the consequences of not repaying it.
When and how can a borrower be contacted?
The new rules give recovery agents the time window between 8 am and 7pm to contact borrowers. The RBI says calls or visits beyond the stipulated hours would only be allowed if the borrower is comfortable with it.
A recovery agent cannot show up at the borrower’s door without notice and must inform him or her at least one day in advance.
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The agent should visit the borrower at the latter’s choice of place but can visit the borrower’s home or workplace if no preference has been given or if the latter repeatedly fails to appear at the designated location.
The rules also instruct agents to carry an identity card, an authorisation letter and the relevant notice during such visits.
The RBI has also cautioned agents to avoid contacting borrowers during sensitive situations like a medical emergency, bereavement or a wedding.
Instructions for banks
The RBI says that banks also must inform borrowers if it changes the recovery agency.
Banks under the new rules are also required to publish and regularly update the list of all empanelled recovery agencies on their websites, including their names, addresses, purpose of engagement and the duration of their appointment.
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Banks will be held accountable for the behaviour of the recovery agents, even though the process is done by another agency.
The RBI has instructed banks to conduct proper due diligence before hiring recovery agencies.
Can banks block devices?
The central bank’s new norms also ask banks to take a gradual approach in cases where they are allowed to disable devices like mobile phones or laptops of defaulting borrowers as part of the loan recovery process.
"A bank shall not deploy any technology-based mechanism... which restricts or disables any of the functionalities of a mobile device of a borrower such as mobile phone, tablet and laptop as a recovery tool, except to recover its loan arising out from financing of such a device,” it said.