RBI Plans Tougher Recovery Rules For Banks; Borrowers To Get More Protection Starting 1 October 2026

The RBI has proposed stricter loan recovery guidelines with the Reserve Bank of India (Commercial Banks-Responsible Business Conduct) Amendment Directions, 2026.

The updated draft proposes new compliance standards for commercial banks. The changes cover areas such as recovery conduct, customer disclosures, borrower privacy and oversight of recovery agencies.

The draft framework has been issued under Sections 21 and 35A of the Banking Regulation Act, 1949. Once finalised, the new rules will take effect from 1 October 2026.

The framework will apply to all commercial banks except Small Finance Banks, Payments Banks, Regional Rural Banks and Local Area Banks.

What Changes Has RBI Proposed For Recovery Agents and Agencies?

One of the biggest changes in the draft framework is the formal classification of “recovery agencies” and “recovery agents”.

According to the RBI, any outsourced entity involved in loan recovery activities, including Business Correspondents handling recoveries, will now fall under the definition of recovery agencies.

Individuals directly interacting with borrowers during the recovery process will be classified as recovery agents. Banks will now be required to maintain tighter oversight over these agencies and agents.

The draft rules require banks to tighten checks before appointing recovery agencies. Banks will have to carry out background verification of recovery agents and ensure they complete certification or formal training through the IIBF or similar institutions.

The RBI has also proposed a formal code of conduct for recovery staff. Banks will be expected to monitor agency performance more closely and maintain proper escalation mechanisms.

The draft framework further requires banks to create detailed recovery policies covering grievance handling, supervision standards and compensation for borrowers affected by non-compliant recovery practices.

How Will The Proposed Regulations Improve Borrower Protection?

Under the proposed norms, banks will have to inform borrowers at least one day before any recovery-related visit. They will also need to publish updated lists of empanelled recovery agencies on their websites and digital platforms.

Any change or termination of a recovery agency’s engagement must also be communicated to customers promptly.

The RBI has also proposed stricter behavioural standards for recovery interactions.

Calls and visits will generally be allowed only between 8 am and 7 pm unless borrowers specifically request otherwise. The draft rules clearly bar recovery agents from using abusive language, intimidation or threatening behaviour while dealing with borrowers.

Additionally, the new regulations seek to restrict excessive calling and stop debtors from being publicly humiliated on social media or other comparable sites.

If a borrower's complaint is still open and unresolved, banks will also be required to halt recovery efforts. In addition, grievance redress systems and documentation of recovery interactions will become mandatory.

What Has RBI Said About Technology Use In Loan Recovery?

The RBI has also tightened rules around the use of technology during loan recovery. Banks will not be allowed to disable or restrict mobile device functionalities for recovery purposes unless the device itself was financed by the bank and specific safeguards are followed.

Even in such cases:

• Emergency calling features cannot be disabled

• Public safety alerts must remain accessible

The draft also introduces a compensation clause for borrowers.

Banks may have to pay borrowers ₹250 per hour if there is a delay in restoring device access after repayment or settlement of dues.

The RBI has additionally prohibited banks from accessing or using personal data stored on borrowers’ mobile devices during recovery actions.

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Call recording and proper documentation of recovery communication will also become mandatory under the proposed framework. The central bank said the move is aimed at improving transparency, preserving borrower dignity and creating a more standardised recovery process across the banking system.

Sources:

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