Draft norms for recovery agents seek higher accountability for banks

The earlier defence that misconduct was the agent's independent act may not work in the future

The Reserve Bank of India (RBI) has proposed sweeping draft norms to rein in coercive loan recovery practices and bring uniform standards across banks, non-banking financial companies (NBFCs) and other regulated entities. The move comes amid mounting criticism over high-handed recovery tactics. By tightening oversight of recovery agents, aligning borrower privacy safeguards with the Digital Personal Data Protection Act, 2023 (DPDP Act), and mandating clearer communication and grievance redressal, the RBI is signalling a shift towards greater system-wide accountability.

 

Recovery framework to be expanded

 

While fair recovery practices have long been mandated, earlier detailed conduct rules largely applied to major banks and housing finance companies (HFCs), with smaller NBFCs, co-operative banks and regional rural banks guided mainly by broad principles. “The draft directions now extend uniform, enforceable standards across all lenders, ensuring consistent minimum protections regardless of the institution. The RBI is closing regulatory gaps and strengthening system-wide accountability,” says Vishal Gehrana, partner designate, Karanjawala & Co.

 

Responsibility fixed at board level

 

Recovery oversight must now reach the board level, with mandatory policies on appointing, auditing and monitoring agents. Agents must be professionally certified.

 

“The draft rules fix clear accountability on banks, not just agents, closing the earlier defence that misconduct was the agent’s independent act. With mandatory due diligence, audits and public disclosure of recovery agents, lenders remain responsible for actions taken in their name,” says Mukesh Chand, senior counsel, Economic Laws Practice, a law firm.

 

“Volume-based incentive structures are barred. All interactions must be documented. Together, these measures shift loan recovery from loosely guided practices to a tightly governed, accountable system,” says Gehrana.

 

Pre-contact disclosures

 

Borrowers must be informed in advance about the identity of the assigned recovery agent. Changes must be promptly notified via SMS or email. Lenders must also publish updated lists of authorised agents on their websites, apps and at branches. “This gives borrowers confidence that the person contacting them is genuinely authorised and reduces the risk of unauthorised recovery attempts,” says Anshuman Panwar, co-founder, Creditas Solutions, which offers AI-based debt collection and recovery solutions to lenders.

 

For small or microfinance loans, visits should take place at agreed locations, with doorstep visits allowed only after the borrower repeatedly misses meetings. Borrowers must be told that interactions may be recorded. These steps aim to prevent impersonation and harassment while ensuring transparency and accountability from the outset.

 

Agent conduct standards set

 

Agents may contact borrowers only between 8 am and 7 pm. They must respect the borrower’s timing and location preferences, and issue proper receipts and authorised written communications.

 

Agents have been expressly barred from harassment, threats, excessive calls, contacting relatives or colleagues, public shaming, misrepresentation of dues, or sending anonymous messages. “Any such conduct is treated as a regulatory breach, exposing the lender to penalties,” says Gehrana.

 

Aligned with DPDP Act

 

Stricter limits on third-party contact, controlled data sharing, call-recording norms and consent-based communication align recovery practices with the DPDP Act, 2023—making it clear that debt collection is not an exception to privacy and dignity.

 

Recovery during grievance redressal

 

A significant change is the requirement to pause recovery action once a borrower raises a dispute or grievance. Lenders must pause recovery during grievance redressal. They may proceed only where complaints are demonstrably frivolous.

 

Pros and cons

 

The key positive is the creation of uniform standards across all regulated lenders, reducing inconsistencies and raising the baseline of acceptable conduct. By fixing accountability on lenders—even where recovery is outsourced—the draft addresses a major source of complaints.

 

“Greater transparency through monitoring and recording of interactions protects both borrowers and compliant agents. By combining the need for recovery with safeguards on training, supervision and accountability, the framework aims to make the process more humane and restore trust in the system,” says Shankey Agrawal, partner, BMR Legal.

 

On the flip side, stricter rules could slow down recovery in genuine default cases and raise compliance costs, especially for smaller lenders operating across regions. Uncertainty over what qualifies as a “frivolous” complaint may also lead to delays or inconsistent decisions.

 

Dealing with recovery agents

 

Borrowers should stay engaged with their lenders. “Initiate a formal discussion with the bank to discuss their debt restructuring plan. If that’s not possible, then try for a settlement plan,” says Abhishek Kumar, a Securities and Exchange Board of India (Sebi)-registered investment adviser and founder, SahajMoney.com. He adds that proactive communication on the part of borrowers can prevent the case from being handed over to external agents.

 

Always verify the recovery agent’s identity and deal only through official channels. “Keep copies of notices, emails and receipts, and promptly raise written complaints if dues appear incorrect,” suggests Agrawal.

 

Remember that agents cannot threaten, intimidate or publicly shame you. Knowing their rights can help borrowers manage the process with confidence.

 

How to handle unlawful conduct

• File complaint with the lender
• Contact designated grievance redressal officer (listed on website or in loan documents)
• If response is delayed or unsatisfactory, escalate to the RBI Ombudsman under the Integrated Ombudsman Scheme (file case online)
• In case of threats or unlawful conduct, approach the police
• Maintain written records at every stage to strengthen the case