Mumbai: Borrowers who miss their Equated Monthly Instalment (EMI) payments are set to receive stronger protection under a new regulatory framework issued by the Reserve Bank of India (RBI). The revised directions, which will come into effect on January 1, 2027, introduce stricter rules for banks and other regulated lenders, with a clear focus on ensuring that loan recovery is carried out fairly, transparently and within the bounds of the law.
The framework seeks to address concerns over recovery practices by laying down a uniform code of conduct for recovery agents and making lenders directly responsible for the actions of agencies engaged on their behalf. The RBI has made it clear that while lenders have the right to recover legitimate dues, the recovery process must not compromise the dignity, privacy or legal rights of borrowers.
One of the key changes is the mandatory recording of all recovery related telephone conversations between lenders or their recovery agents and borrowers. These recordings must be preserved by regulated entities, creating an audit trail that can help resolve disputes and strengthen oversight of recovery practices.
The directions also require recovery agents to clearly identify themselves before initiating any recovery process. They must disclose the name of the regulated entity they represent, carry valid authorisation and communicate with borrowers in a professional and respectful manner. Lenders will be expected to ensure that all recovery personnel receive appropriate training and comply with the prescribed code of conduct.
The RBI has reiterated that borrowers cannot be subjected to threats, intimidation, abusive language, harassment or any form of coercion for delayed loan repayments. Recovery activities must be conducted in accordance with applicable laws and regulatory guidelines. The responsibility for ensuring compliance will continue to rest with the regulated entity, even if recovery services are outsourced to third party agencies.
The new framework also introduces safeguards for technology enabled recovery methods. Where a mobile phone financed through a loan has certain functions disabled because of payment defaults, regulated entities will be required to restore those restricted functions within one hour after the overdue amount is paid. The RBI has also prescribed conditions governing the use of such technology to ensure that borrowers are treated fairly.
For loans secured against assets, the directions provide detailed procedures for repossession. Lenders must follow due legal process, provide the required notices and comply with all applicable regulations before taking possession of secured property. The framework is intended to bring greater consistency to recovery procedures across banks and other regulated financial institutions.
The revised directions replace earlier recovery related provisions under the Responsible Business Conduct Directions, 2025, and establish a more comprehensive regulatory framework for loan recovery. The RBI said the measures are aimed at improving transparency, strengthening accountability and promoting responsible lending practices across the financial sector.
The latest changes come amid growing attention on borrower protection and ethical recovery practices. By requiring better documentation, stricter oversight of recovery agents and clearer responsibilities for lenders, the central bank aims to strike a balance between protecting borrowers from unfair treatment and enabling financial institutions to recover genuine outstanding dues through lawful means.