RBI extends recovery norms deadline, eases certification timeline

The RBI has deferred implementation of revised recovery norms to January 2027 and given regulated entities a year to certify existing recovery agents through the IIBF

The Reserve Bank of India (RBI) on Thursday said its revised directions on loan recovery and engagement of recovery agents would now be effective on January 1, 2027, extending it from the earlier proposed October 1, 2026.

 

It has allowed regulated entities (REs) that were not covered by certification requirements a one-year window to ensure their recovery agents obtain certification from the Indian Institute of Banking and Finance (IIBF).

 

The changes were made after the central bank received stakeholder feedback on the draft directions.

 

The implementation date was extended after stakeholders said lenders would require more time to make changes to systems and workflows and train recovery agents.

 

The RBI said the extension took into account the “technical and operational changes necessitated by the Directions” and was intended to facilitate smooth implementation.

 

While providing a transition period for recovery agents, the RBI did not relax the certification requirements for newly engaged agents.

 

It rejected suggestions to allow recovery agents to obtain IIBF certification after engagement, saying the requirement was intended to ensure recovery agents possess the required knowledge before interacting with borrowers.

 

The RBI said allowing agents to engage with borrowers prior to certification “may expose borrowers to conduct risks from inadequately trained/certified personnel”.

 

The central bank also said the directions did not apply to an RE’s own employees doing recovery jobs, agents collecting regular periodic instalments, or law firms assisting lenders by issuing notices or representing them before courts.

 

This is because they generally do not interact with borrowers, according to the regulator.

 

The RBI also modified provisions relating to technology-based restrictions on financed mobile devices. It accepted suggestions requiring the device-locking mechanism to be certified by the original equipment manufacturer or the operating system platform. It also incorporated provisions to ensure restrictions do not prevent borrowers from carrying out work-related activities and clarified that compensation for wrongful restriction or delay in restoring device functionalities would be capped at the amount of the loan disbursed. In addition, the draft now clarifies that “curing of default” referred to the “realisation of dues” by the lender.

 

Restrictions cannot be initiated until the associated loan has become 30 days overdue and the borrower has failed to repay despite receiving notices.

 

Full restrictions can be imposed only after the loan has become 60 days past the due date. Further, the “bank shall adopt a gradual approach rather than disabling the device, ab initio”, while it “shall not restrict /disable functionalities deemed essential, such as access to incoming calls, SMS and emergency SOS features”.

 

Among the changes accepted by the RBI, antecedent verification of recovery agents may now be carried out either by the regulated entity or the recovery agency.

 

The RBI withdrew the proposal requiring lenders to publish details of individual recovery agents, citing operational concerns arising from the high turnover of this category of workers. However, lenders will continue to publish details of empanelled recovery agencies and update the list within seven calendar days of any modification.

 

The RBI, however, did not accept suggestions on excluding contractual possession clauses from loans enforced under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, stating that the provisions were intended to complement the existing legal framework by ensuring key aspects relating to possession of security were clearly incorporated in loan agreements and brought to the borrower’s notice.