Debt recovery has been a long-standing issue in the Indian banking industry. More than 20 years since the Reserve Bank of India (RBI) addressed the issue, the latest guidelines issued in 2026 and applicable from January 1, 2027, stories of intimidation keep getting reported in different forms.
In 2024, Nandini, a 29-year-old schoolteacher from Malda in West Bengal, financed a smartphone worth Rs 36,000, with an equated monthly instalment (EMI) of Rs 3,000. She relied on the phone to stay in touch with her family as well as for her school-related work. A few months after the purchase, she had to deal with an unexpected medical expense for her mother’s treatment. She missed two instalments.
She soon started getting recovery calls. During one of those, a representative threatened that her phone could be disabled if she did not pay up immediately. That possibility worried her beyond the financial cost. Losing access to the phone could disrupt her work, leave her unable to receive school updates and make it tougher to coordinate her family’s needs. She then borrowed some money from a friend to pay one of the instalments but couldn’t keep up with regular payments now that she had multiple loans. The calls continued in the meanwhile. Little did she know then that RBI guidelines clearly state that such coercion tactics were illegal and she could approach the bank for a resolution, which she later did.
1 October 2026
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The prohibition of harassment by debt recovery agents is not new. How the 2026 amendment, under the Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents, stands apart is that it spells out more detailed processes and safeguards that lenders must put in place on recovery policies, agent verification and training, call records, agency disclosures, grievance handling, and restrictions on financed devices.
The concern is not that every recovery agent uses unfair methods. Agents legitimately need to inform borrowers about overdue payments and discuss repayment options. Problems arise when the pressure to collect leads to intimidation, threats or other conduct that breaches regulatory requirements.
Santanu Agarwal, deputy managing director, Paisalo Digital, a non-banking finance company (NBFC), explains the difference between legitimate collection and harassment. “Legitimate recovery is professional and focused on resolving outstanding dues. Harassment involves coercive tactics, excessive contact, threats or shaming borrowers. Lenders must monitor not just recovery performance but also how collections are conducted.”
There’s a history of recovery agent regulation, so why does the problem persist, what has made the rules ineffective in many cases and what should you know to protect yourself?
The History Of Regulation
RBI first issued fair lending guidelines in 2003, addressing the issue of undue harassment of borrowers, but almost nothing changed. Even RBI’s outsourcing guidelines of 2006, which went a step ahead and fixed the lender’s accountability and laid guidelines on harassment and customer confidentiality, had little effect on how recovery agents conducted themselves.
Take the case of Rajesh, a 38-year-old private sector employee from Dehradun who did not want to reveal his real name. He took a personal loan of Rs 4 lakh in January 2006 at an annual rate of interest of 15 per cent. After his employer cut his salary by around 20 per cent in 2007, he was strapped for cash and missed two EMIs after making 18 regular payments. He received back-to-back calls, threats and was intimidated. Even though the 2006 guidelines highlighted the need for customer confidentiality, a recovery agent visited Rajesh’s workplace and discussed his financial situation with a colleague.
Rajesh decided to address the issue head on. He noted the dates of the calls and workplace visit, retained the messages he had received and submitted a written complaint to the lender. He also requested for direct communication. That worked. The bank allowed him to clear the overdue amount of Rs 26,000 in four EMIs of Rs 6,500, alongside his regular EMI.
But not everyone has the courage to address such issues directly. Even Rajesh did it with his colleagues’ support. “Initially, I felt humiliated and kept postponing talking to the lender directly or asking for a solution. But then my colleagues encouraged me to get a solution from the bank directly. That solved the problem.”
That was before the RBI issued revised guidelines in April 2008 on the engagement of recovery agents by banks, citing the rise in related cases. These guidelines covered due diligence, agent conduct, customer confidentiality and training. They also made clear that recovery agents should not use intimidation or harassment, including public humiliation, intrusive contact with family members, and threatening calls.
In August 2022, RBI issued a circular, titled Outsourcing of Financial Services: Responsibilities of Regulated Entities Employing Recovery Agents, which reiterated that the ultimate responsibility for outsourced activities rested with the regulated lender. The circular also listed prohibited conduct, including threats, public humiliation, inappropriate messages, persistent calls, and calls before 8am or after 7pm.
What Makes Them Ineffective?
On the lender side, two major problems are outsourcing and pushing agencies towards targets by attaching incentives to them.
Lenders usually appoint a third-party agency as they have thousands of accounts across different locations. Outsourcing can make supervision difficult, says Kaushik Chatterjee, founder and CEO, lendingplate, an RBI-registered and BSE-listed NBFC. Without proper checks, it can be difficult to establish what an agent does during a phone call or a visit.
Chatterjee adds: “Accountability remains central to responsible recovery, whether the process is managed internally or through a third-party agency. Regulated lenders are expected to exercise appropriate oversight over their recovery partners and ensure compliance with applicable regulatory requirements. This includes due diligence, clear codes of conduct, regular monitoring, and effective mechanisms for addressing borrower grievances.”
Another challenge is incentive-chasing. Siddharth Agarwal, founder and managing director, Mobicule Technologies, an artificial intelligence (AI)-powered debt collection and resolution platform, explains how collection incentives can contribute to the problem. “When agencies are paid a percentage of what they recover, the pressure to collect flows down to the individual agent. Without checks, that pressure can turn into the kind of coercion that the rules prohibit.” The new guidelines discourage this by stressing on stricter oversight.
Besides, there is lack of awareness on the borrowers’ part. Nandini is a case in point. When repeated calls became a nuisance, she started ignoring them, but at the cost of piling interest and late payment charges.
It was only after a colleague mentioned that lenders might resort to blocking financed devices that Nandini decided to check her loan agreement. She contacted the lender’s customer service team to understand the overdue amount and ask what options were available.
She ended up borrowing Rs 7,000 from a family member to pay off her total dues of Rs 7,200, including two missed EMIs of Rs 1,000 in bounce charges, and daily penal charges (calculated at 36 per cent per annum). She agreed to repay the borrowed sum to her relative over six months without interest.
The threat that her phone will be blocked led Nandini into bad money decisions, but the fact is she was not given any resolution even though she had explained her circumstances in her earlier calls with the agent.
Kundan Shahi, founder and CEO, ZAVO, a loan settlement and repayment platform, says that lenders must distinguish between borrowers who deliberately avoid repayment and those facing genuine financial difficulty. Both situations require different responses.
He says: “One major flaw in traditional collections is that they treat all defaults as a matter of will. Borrowers facing real financial challenges are likely to hide from their creditors. At the same time, some borrowers may express more willingness to pay, although their capacity to do so remains low. The two situations are different, which is why collection (methods) should be different as well.”
What Should You Do?
If you think it will be difficult to pay your EMIs due to a job loss or emergency, contact your lender, check the overdue amount and ask about available repayment options. But don’t assume that restructuring or settlement is guaranteed. Also, review the cost and conditions of any proposed arrangement before accepting it (see Know Your Limitations). Also, obtain the terms in writing and understand how the arrangement could affect the total repayment amount and credit history.
If a lender or recovery agent crosses the line, record the date, time and nature of incident, retain messages or evidence, and write a complaint to the lender
If a lender or recovery agent crosses the line, record the date, time and nature of the incident, retain messages or other evidence, and submit a written complaint to the lender. “Bring it to the attention of your loan account manager or branch through email, in person, or through a personal visit,” says Amol Joshi, founder, PlanRupee Investment Services, a financial planning firm based in Mumbai.
If the lender does not resolve the complaint within the applicable period, you can consider the RBI Ombudsman route where eligible.
To avoid frauds, verify payment requests through official channels and retain receipts for every repayment. Never share confidential banking credentials or make payments to an agent’s personal account without verifying the payment process.
If the repayment plan does not work, you may consider liquidating your savings or investments to repay costly debt. Says Joshi: “If you can no longer service your EMI, your first option is to liquidate other assets, such as fixed deposits (FDs), mutual funds, stocks, or insurance policies. There is no point continuing an FD at 6-7 per cent, while running a loan at 12-16 per cent. Once you pay off the loans, start rebuilding your corpus again.”
Do note that using savings or investments to repay a loan may make financial sense when the borrowing cost is higher than the return on the asset. Also, consider the tax costs, exit charges or losses. Compare your options and account for essential expenses, including maintaining an emergency fund, says Joshi.
Joshi says the situation can be nipped in the bud by assessing repayment capacity before taking on debt. He says that once a loan has been taken, missed instalments can have consequences beyond late payment charges. “Failing to repay a loan negatively impacts your Cibil score and can prevent you from securing bigger loans later.”
The Way Forward
RBI’s 2026 amendment set out detailed requirements for recovery policies, agent training, agency oversight, call records, complaints and technology-based restrictions on financed devices. The rules do not prevent lenders from recovering legitimate dues. They establish boundaries on how recovery can be carried out and place responsibility on lenders to supervise their employees and agencies.
Experts say early warning systems can help lenders identify borrowers who may struggle to pay before overdue amounts build up.
Says Shahi: “Using these systems, lenders will be able to differentiate between a temporary liquidity crunch and a long-term financial crisis, and a conscious refusal to pay. Depending on the situation, the loan recovery management system could recommend to the collection agents to either be more lenient with the borrower and offer a different payment plan, or to step up the pressure, if the borrower deliberately refuses to pay and has the capacity to do so.”
Another thing that can help avoid harassment during recovery is building compliance into the system. “Compliance must be built into the recovery process rather than left entirely to an individual collector’s judgement. Call records, documented field visits, contact-hour controls and regular audits can help lenders identify misconduct, verify complaints, and hold recovery agents accountable,” says Agarwal.
Mukesh Pandey, founder and managing director, Rupyaapaisa.com, a financial consultancy and loan comparison platform, says there is a need for clear information and properly-trained recovery agents. “Responsible loan recovery is a key part of a sustainable functioning lending system and must be based on fairness, transparency and mutual respect. Lenders have a right to recover outstanding debts, but the process must not violate the dignity, or legal rights of the borrower.”
Chatterjee says the recovery communication should be transparent and proportionate, with accurate information about outstanding dues and clear guidance on the channels available for resolution.
The way forward is to transition from a collection-led culture to a resolution-led ecosystem where technology-enabled transparency and financial counselling will enable lenders to achieve better recovery rates and help borrowers meet their repayment commitments, says Shahi.
For lenders, the challenge is to recover outstanding dues without violating borrowers’ rights. What can help borrowers distinguish legitimate recovery efforts from unacceptable conduct is knowledge of those very rights and rules (see Know Your Rights) and the intent to pay up.
Know Your Rights
The 2026 RBI guidelines lay down clear rules to improve transparency in debt recovery rules and prohibit actions that lead to harassment of the borrower. Here are things you must know about
Lenders Must Have A Written Recovery Policy
According to the revised guidelines, banks must establish a formal policy explaining how overdue accounts are handled, how recovery agents should behave, how complaints are addressed and how recovery agencies are supervised.
The policy must provide guidance for cases involving financial distress and explain the processes that apply in circumstances, such as a borrower’s death. Banks must also establish procedures for reviewing recovery agencies and dealing with violations. The objective is to make debt recovery a supervised process.
Recovery Agents Must Be Verified And Trained
Banks must carry out background checks before engaging recovery agents and conduct further checks at intervals.
Agents must complete the prescribed Debt Recovery Agent training programme and obtain certification from the Indian Institute of Banking and Finance (IIBF), or an eligible institute with an IIBF tie-up, as applicable.
Banks must establish codes of conduct for employees and recovery agents. Outsourced agencies must agree to follow these requirements.
For borrowers, this means the recovery agent should act under the lender’s authority and follow the conduct rules.
Borrowers Must Receive Information About Recovery Agencies
Banks must publish an updated list of their recovery agencies on their websites, including the agency’s name, address, engagement period and purpose.
Before an agency makes its first in-person visit, the lender must inform the borrower or guarantor at least a day in advance. If the agency changes, the same must be notified to the borrower.
These requirements help borrowers verify whether a person contacting them is authorised to act for the lender. Anyone unsure about an agent’s identity can contact the lender through its official customer-service channel before sharing information or making a payment.
Recovery Calls Must Be Documented
Banks must record the timing and number of recovery calls made by their employees and agents. They must also maintain recordings or text records of the content of calls made by recovery agents and calls received through the contact numbers provided by the bank.
These records must ideally be kept for six months from the date of the call. If a matter is sub-judice before a court, the records must be retained until the proceedings are disposed of. Banks must take precautions, including informing borrowers that calls are being recorded.
Such records can prove what happened in a recovery interaction and allow lenders to investigate complaints.
Threats, Public Humiliation And Misleading Claims Are Prohibited
Recovery agents cannot use abusive language, threats, violence or intimidation to force repayment. The directions also cover excessive calls, anonymous or threatening communications, public humiliation, and attempts to damage a borrower’s reputation.
Agents cannot harass relatives, friends, referees or co-workers, or make false or misleading claims about the debt or the consequences of non-payment. They cannot publish borrowers’ personal details or audio and video recordings on social media as a recovery tactic.
Contact Hours And Field Visits Have Clear Limits
Under the revised directions, banks and their recovery agents can contact or visit borrowers only between 8am and 7pm, unless the borrower has expressly requested or authorised contact outside those hours.
Agents must identify themselves during visits and carry the required authorisation letter and notice. They must behave politely and discuss recovery matters with the borrower or guarantor, as applicable.
Agents should ordinarily contact borrowers at their preferred location and honour requests to avoid contact at specific times in normal circumstances. They must also avoid inappropriate occasions, such as a family bereavement, medical emergency or wedding function.
For microfinance loans, collection should ordinarily take place at a designated or central designated place mutually decided by the borrower and lender. Field staff may visit the borrower’s home or workplace if the borrower fails to attend the designated place on two or more successive occasions, subject to the applicable directions.
Borrowers Must Have A Complaint Mechanism
Banks must provide a dedicated channel for recovery-related complaints. Details of the mechanism must be included in the loan agreement and shared when the borrower receives information about the recovery agency.
Recovery-related communications must also provide the name, email address, telephone number and address of the bank’s grievance redressal officer.
Borrowers who face misconduct should keep messages, call details, payment receipts and complaint acknowledgements. They can first complain to the lender through its official grievance channel. If the complaint is not resolved within the applicable period, they may approach the RBI Ombudsman, subject to the scheme’s eligibility conditions and process.
Recovery Of Financed Goods
The revised directions also set conditions for lenders using technology to restrict a financed mobile phone, tablet or laptop after default. Restrictions must relate to the loan used to finance that particular device, be expressly and unambiguously permitted by the loan agreement, and follow the required notice and timing safeguards.
Restrictions cannot begin until the loan is 30 days overdue and the borrower has not paid despite receiving the required notices. Gradual restrictions may begin after that point, but the full set of contractual restrictions cannot take effect before the loan is 60 days overdue. Outgoing calls cannot be restricted before the 60-day mark.
Essential functions, including incoming calls, SMS and emergency SOS, must be preserved. Restrictions cannot prevent the borrower from carrying out work or employment activities. The lender must reverse restrictions within one hour after receiving the dues and cannot access personal data on the device for recovery purposes.
Where a lender wrongfully restricts a device, or delays reversing a restriction after payment for reasons attributable to it, the prescribed compensation is Rs 250 per hour, capped at the amount of the loan disbursed. These provisions are particularly relevant for borrowers who depend on financed devices for work, education or family responsibilities.
Accountability Is Clear
Accountability requires more than checking whether overdue money has been collected. Lenders must also review how collection is carried out, investigate complaints, and ensure that agents follow the applicable rules.
Lenders cannot avoid responsibility simply because an outside agency handles recovery. They must ensure that recovery targets and incentive structures do not encourage harsh recovery practices. Banks must conduct due diligence, establish clear conduct rules, monitor agencies and take action when violations occur or when agents breach the required standards.
Know Your Limitations
A lender can contact you about overdue payments and pursue lawful recovery.
Don’t assume that a request for more time will be accepted.
The lender has the right to offer restructuring or settlement, or take further recovery action as per its policies and applicable law.
The restrictions concern the methods used, not the lender’s underlying right to seek repayment.
A complaint about an agent’s behaviour and the obligation to repay a loan are separate matters. Filing a complaint does not cancel outstanding debt.
priyanka.debnath@outlookindia.com
