Reserve Bank of India moots rules to rein in harsh debt recovery

The proposed norms will come into effect from July 1, 2026. Feedback on the draft may be submitted by March 4, 2026

Seeking to ensure fair treatment of borrowers during the recovery process, the Reserve Bank of India (RBI) has released draft guidelines barring banks and their recovery agents from using harsh or coercive practices.

 

The draft norms explicitly prohibit abusive or threatening language, excessive or anonymous calls, inappropriate messages, harassment of borrowers or their associates, public humiliation, threats of violence, and misleading representations regarding debt obligations or the consequences of non-repayment.

 

The proposed norms are set to take effect from July 1. Feedback on the draft may be submitted by March 4.

 

Under the draft guidelines, banks are required to establish a dedicated mechanism for addressing recovery-related grievances.

   

The central bank has mandated that banks document the time and number of calls made by employees or recovery agents to borrowers or guarantors. Banks must also ensure that all such calls are recorded.

 

RBI has proposed that recovery agents interact only with borrowers or guarantors, refraining from contacting relatives or other associates. Recovery calls and visits would be allowed only between 8 am and 7 pm, and banks must honour a borrower’s request to avoid contact at specific times under normal circumstances. Agents have also been directed to avoid recovery attempts during sensitive occasions such as bereavement, family emergencies, marriages, or festivals.

 

For microfinance loans, collections must occur at a mutually agreed designated location. However, field visits to the borrower’s residence or workplace would be permitted if the borrower fails to appear at the designated place on two or more successive occasions.

 

The draft norms further require recovery personnel to maintain civility, decency, and decorum in all interactions.

 

Lenders are also expected to ensure that recovery agents undergo training and receive certification from the Indian Institute of Banking & Finance after completing the programme for debt recovery agents. Banks must implement a proper code of conduct for both recovery agents and employees involved in loan recovery and obtain their agreement to abide by these guidelines before assigning duties.

 

Banks must display an up-to-date list of empanelled recovery agents across all channels, including branches, officers, and digital platforms. In cases where an agreement with an agent is terminated, the bank must publicise the change to ensure borrowers do not continue to deal with the agent or its representatives.

 

When a case is forwarded to a recovery agent, banks are required to inform the borrower in writing — either through a letter to their current address, an SMS to their registered mobile number, or an email to their registered address. The bank must also notify the borrower of any changes in the recovery agent during an ongoing recovery process.

 

Banks must ensure that borrower information is shared with employees or recovery agents only to facilitate loan recovery duties and must implement safeguards to prevent misuse of this information.

 

If a borrower has lodged a grievance, the bank should not forward the concerned recovery case to an employee or recovery agent until the grievance is resolved. “However, where the bank is convinced, with appropriate evidence, that the borrower is making frivolous or vexatious complaints to avoid recovery, it may continue recovery proceedings even if a grievance is pending,” RBI said.

 

At the same time, banks must ensure that recovery targets or incentive structures in contracts with recovery agents do not encourage harsh recovery practices.

 

Fair play for borrowers

 

·         Banks must log all calls by staff and agents

 

·         Agents can contact only borrowers, not relatives or associates

 

·         Calls restricted to 8 am–7 pm

 

·         Collections off-limits during sensitive occasions

 

·         Frivolous complaints won’t halt proceedings