Summary of this article
RBI has proposed limits on mobile blocking for loan recovery
Banks have been barred from abusive loan recovery practices
Borrowers may receive compensation for wrongful device restrictions
The Reserve Bank of India (RBI), on Wednesday, has proposed that banks cannot disable or restrict the mobile phones of borrowers who default on personal, car, or home loans, in a move aimed at curbing aggressive recovery practices.
Under the revised draft directions on the conduct of regulated entities in loan recovery, banks have been forbidden to use technology-based tools to block or disable mobile devices as a recovery measure, except in cases where the device itself was financed through a loan provided by the lender.
Restrictions Allowed Only For Device Loans
RBI has said banks may deploy such measures only when the loan was specifically taken to purchase the concerned device, such as a smartphone or tablet.
Even in such cases, banks cannot block the device immediately after a default. The central bank has proposed that the borrower’s account must first become 90 days past due, and the borrower should fail to clear the dues despite receiving notices from the lender.
The draft directions have also placed limits on the type of restrictions that lenders can impose. Banks cannot to block essential functions of the device, including internet access, incoming calls, emergency SOS features, and receipt of government or public safety alerts.
Compensation For Wrongful Blocking
RBI has also proposed timelines for restoring the device and its functionality once the borrower clears the dues.
According to the draft, banks are required to reverse the restrictions “expeditiously” and in any case within one hour after the borrower clears the due.
In instances where a lender has wrongfully blocked a device or delayed restoring access, the bank will have to compensate the borrower at the rate of Rs 250 per hour until the issue is resolved.
The central bank has said the measures are intended to balance the recovery rights of lenders with borrower protection and fair conduct standards.
New Rules For Recovery Agents
The revised draft directions have also tightened rules governing the conduct of recovery agents and bank employees engaged in loan collection activities.
Banks are now required to maintain records of the contact number and timing of calls made by recovery agents or employees to borrowers and guarantors.
RBI has also proposed that lenders should maintain recordings of conversations and preserve the content or text of communications exchanged during recovery efforts.
This includes calls made by recovery agents to borrowers and calls made by borrowers to numbers provided by the lender.
The draft directions have prohibited harsh recovery practices, including the use of abusive or threatening language.
The central bank has specifically identified practices such as posting borrowers’ personal details or recordings on social media platforms, sending inappropriate messages through social media or mobile phones, and repeatedly calling or messaging borrowers as unacceptable methods of recovery.
Policy Framework And Accountability
The central bank has asked lenders to establish a formal policy governing recovery practices and engagement with recovery agents.
The policy should cover procedures related to the collection and recovery of loan dues, including taking possession of security or collateral where applicable.
Banks and other regulated entities have also been required to specify penal action for recovery agencies or agents found violating the prescribed norms.
Separate draft directions have been issued for small finance banks, regional rural banks, cooperative banks, non-banking financial companies, and housing finance companies.
Stakeholder Feedbacks
RBI had first issued the draft amendment directions on Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents in February for public consultation. According to the central bank, it has received substantial feedback from stakeholders, leading to revisions in several key provisions of the original draft.
Stakeholders can submit comments on the revised draft directions until May 31. The proposed norms are expected to come into effect from October 1, 2026, after the consultation process is completed.
FAQs
Can banks block a borrower’s mobile phone for unpaid loans?
The RBI has proposed that banks should not block or disable mobile phones for unpaid personal, car, or home loans. Restrictions may be allowed only if the loan was taken to finance the mobile device itself.
When can a lender disable a financed mobile device?
A lender may disable certain functions of a financed device only after the loan becomes 90 days past due and the borrower fails to repay despite receiving notices.
Which mobile phone functions cannot be blocked?
Banks have not been allowed to disable essential services such as internet access, incoming calls, emergency SOS features, and government or public safety notifications.
What compensation will borrowers receive for wrongful blocking?
If a bank wrongly blocks a device or delays restoring access after repayment, the borrower will have to be compensated at Rs 250 per hour until the issue is resolved.
