RBI proposes Rs 250-per-hour compensation for wrongful phone restrictions by banks

Mumbai: The Reserve Bank of India has proposed fresh rules aimed at curbing aggressive loan recovery practices, including a ban on banks disabling or restricting the mobile phones of borrowers who default on personal, vehicle or housing loans.

Under the proposed framework released on Wednesday, lenders would only be permitted to block or limit functions on a mobile device if that particular device had itself been purchased using finance provided by the same bank.

RBI targets harassment in loan recovery

The central bank’s revised draft norms focus on conduct-related issues during loan recovery and the engagement of recovery agents.

The move comes after complaints from borrowers regarding harassment by lenders and recovery agents, including the alleged use of abusive language, excessive communication and social media intimidation.

According to the RBI’s proposal, banks will not be allowed to use technology that disables or limits features on a borrower’s phone, tablet or similar device purely as a means of recovering unpaid dues.

“A bank shall not deploy any technology-based mechanism, which restricts or disables any of the functionalities of a mobile device of a borrower, such as mobile phone, tablet, as a recovery tool, except to recover its loan dues arising out from financing of such a device,” the draft directions stated.

Exception allowed only for financed devices

The RBI clarified that restrictions could still be imposed if the bank had financed the purchase of the mobile device in question.

Even in such cases, lenders would not be allowed to activate blocking mechanisms immediately after a missed payment.

The proposed rules state that a device cannot be restricted unless the related loan remains unpaid for at least 90 days and the borrower has failed to clear the dues despite receiving notices from the lender.

Essential phone features cannot be blocked

The central bank also proposed safeguards to ensure that certain basic and emergency features remain functional even if restrictions are applied.

Banks would not be allowed to disable internet access, incoming calls, emergency SOS facilities or government and public safety notifications on financed devices.

The RBI further stated that any restrictions imposed must be removed quickly once the borrower clears the default.

According to the draft, lenders would be required to restore full device functionality within one hour after payment is made.

Compensation for wrongful restrictions

The proposal also includes compensation provisions for borrowers.

If a bank wrongfully blocks a device or delays restoring services after the dues are cleared, the lender would have to compensate the borrower at the rate of ₹250 per hour until the issue is corrected.

Calls and messages to borrowers to be recorded

As part of the proposed rules, banks would also have to maintain proper records of all recovery-related communication.

This includes documenting the number and timing of calls made by employees or recovery agents to borrowers and guarantors.

The RBI also proposed mandatory recording of conversations and text exchanges between recovery personnel and borrowers.

“Further, the bank shall ensure that there is a recording of the content/text of the calls made by the employee/recovery agent to the borrower/guarantor and the calls made by the borrower/guarantor to the telephone/mobile number conveyed by the bank,” the draft directions stated.

RBI warns against harsh recovery practices

The central bank reiterated that lenders and recovery agents must avoid intimidating or abusive behaviour while collecting dues.

The RBI listed several practices that would fall under “harsh methods”, including:

• Use of threatening or abusive language
• Sharing personal details, videos or audio recordings of borrowers on social media
• Sending inappropriate messages through mobile phones or social media platforms
• Excessive calling or messaging of borrowers and guarantors

The draft also directs banks to create formal policies governing loan recovery and repossession activities carried out either by their own staff or by external recovery agencies.

These policies must also include action against recovery agencies or agents found violating the rules.

Revised draft issued after stakeholder feedback

The RBI had first released draft directions on recovery practices in February for public consultation.

According to the central bank, it received extensive feedback from stakeholders, leading to changes in several important provisions before the revised draft was issued.

The regulator said comments on the updated proposal can be submitted until May 31.

Separate draft directions have also been prepared for small finance banks, regional rural banks, co-operative banks, non-banking financial companies and housing finance companies.

The RBI noted that some stakeholders had also sought regulatory clarity on the use of technology-based restrictions on financed mobile devices in loan default cases, which has now been addressed in the revised proposal.

Proposed rules may take effect from October 2026

The Reserve Bank has proposed implementing the revised recovery norms from October 1, 2026, if the framework is finalised after the consultation process.

Agency inputs