RBI May Allow Lenders To Lock Mobile Phones On Default Of Loans

The Reserve Bank of India (RBI) is in the process of coming up with new guidelines to enable lenders to remotely freeze mobile phones bought on loan if borrowers default on loan repayment. The policy will target small loans of up to Rs 1 lakh. The objective is to enable lenders to recover unpaid dues more effectively in a transparent manner. 

RBI will revise its Fair Practices Code to incorporate these guidelines. The guidelines will detail the manner in which lenders can lock devices, prior borrower consent being mandatory, and not being able to access personal information stored on locked phones. This guards borrowers' privacy while restricting the device, according to a news report by Reuters.

Scope Of Loans

The new rule will primarily apply to small-ticket loans on mobiles and other consumer electronics. Such small loans have recorded higher default rates in the last few years and have led to a rise in non-performing assets (NPAs) for banks and financial institutions. RBI wants this policy to improve the recovery of such loans without diminishing other forms of credit.

Operational Guidelines

Under the proposed rules, lenders will need to obtain explicit consent from borrowers before locking devices. Only the device can be restricted; lenders will not be allowed to access or use any personal data stored on it.

Expected Implementation

Lenders will adopt these guidelines after RBI finalises the amendment to the Fair Practices Code. The rules are intended to accelerate and make loan recovery more predictable for small loans, while ensuring consumer protection measures. Borrowers will also be notified beforehand if remote locking is likely to be undertaken, and all these procedures will be under RBI supervision.

More than a third of consumer electronics in India are bought on the back of small loans. With over 1.16 billion mobile connections in the country, the potential impact of the policy is huge. By targeting the small loans, lenders can recover what could otherwise be tough to collect, according to the report.