RBI Tightens Rules on Loan Recovery Agents

Why in News?

The Reserve Bank of India (RBI) has issued draft guidelines to regulate the conduct of loan recovery agents, aiming to prevent harassment and ensure responsible recovery practices. The proposed rules will take effect from July 1, 2026, after public consultation.

Background

Complaints about recovery agents using coercion, intimidation and public humiliation have increased in recent years. To address this, the RBI has proposed comprehensive behavioural norms under the Responsible Business Conduct Second Amendment Directions, 2026.

What Will Be Treated as “Harsh Recovery Practices”?

Banks and recovery agents will be strictly prohibited from:

• Using threatening, abusive or humiliating language.
• Making repeated or excessive calls, or calling outside permitted hours.
• Sending inappropriate or coercive messages through phone or social media.
• Harassing borrowers, guarantors, or their relatives, friends or colleagues.
• Publicly shaming or intimidating borrowers.
• Threatening violence or damage to reputation or property.
• Providing false or misleading information about the debt or legal consequences.

New Responsibilities for Banks

Banks must institutionalise responsible recovery by:

• Creating a formal policy on loan recovery and engagement of recovery agents.
• Conducting due diligence before hiring recovery agents.
• Setting clear codes of conduct and performance standards.
• Establishing procedures for taking possession of collateral in a lawful manner.

Mandatory Grievance Redressal

• Every bank must create a dedicated mechanism to handle complaints related to recovery practices, ensuring timely resolution.

Regulatory Significance

• Strengthens borrower rights and financial consumer protection.
• Promotes ethical and transparent lending practices.
• Enhances accountability of banks and recovery agencies.
• Reinforces trust in the banking system.