RBI allows lenders to disable financed mobiles in loan default cases

The RBI has proposed allowing lenders to restrict financed mobile devices in loan default cases, while mandating safeguards, borrower notices and compensation for wrongful action

The Reserve Bank of India (RBI) on Tuesday allowed banks and non-banking financial companies (NBFCs) to disable or restrict mobile devices and tablets in case of loan default only if the device is financed by them and the loan contract unambiguously permits such action.

 

In the revised draft directions on the conduct of regulated entities in recovery of loans and engagement of recovery agents, the RBI said lenders must serve notice to the borrower after the loan becomes 60 days past due, with at least 21 days provided to the borrower to cure the default.

 

Furthermore, lenders have been asked to serve another notice to the borrower after the expiry of the first notice, with at least another seven days provided to cure the default.

   

Banks have been asked to adopt a graduated approach for disabling devices and shall not restrict or disable certain essential functionalities, such as access to the internet, incoming calls, emergency SOS features, and receipt of emergency government or public-safety notifications.

 

“The bank shall ensure that the restrictions on device functionalities are reversed expeditiously, in any case within one hour of the borrower curing the default,” the draft norms said.

 

For wrongful restriction or delay in reversal of restriction after the borrower cures the default, the lender shall compensate the borrower at the rate of ₹250 per hour till the wrongful action is remedied.

 

The technology-based mechanism deployed for restricting the functionalities of the mobile device shall be uninstalled soon after the loan is repaid in full, the norms said.

 

Further, the RBI prohibited lenders from accessing, using, obtaining, or retaining data stored on borrowers’ devices under any circumstances for recovery or any other purpose.

 

The draft framework consolidates and expands instructions relating to recovery agents and recovery practices for lenders. It mandates lenders to put in place policies covering triggers for recovery action, escalation matrices, code of conduct for recovery agents and employees, compensation mechanisms for borrowers, and due diligence standards for recovery agencies.

 

Banks engaging recovery agencies will also have to ensure that agents are certified through training programmes conducted by the Indian Institute of Banking and Finance (IIBF) or affiliated institutions.

 

To improve transparency, lenders will be required to maintain and make available updated lists of recovery agencies empanelled or engaged by them across branches, websites, mobile applications, and other customer touchpoints. Borrowers and guarantors must also be informed at least one day before a recovery agent’s first in-person visit through SMS or email, or three days in advance through a letter where digital contact details are unavailable.

 

The RBI also prescribed detailed conduct standards for recovery agents. Agents can contact borrowers only between 8 am and 7 pm unless expressly authorised otherwise by the borrower. They have been barred from using abusive language, threatening calls, excessive messaging, public humiliation, social media posts, or intimidation tactics during recovery efforts.

 

The draft directions also require banks to record recovery-related calls and preserve records for six months, or longer in cases under litigation. Recovery cases where borrowers have lodged grievances cannot be assigned to recovery agencies until the complaint is resolved.

 

The proposed directions will come into force from October 1, 2026.