The Reserve Bank of India (RBI) has issued amended directions on the conduct of regulated entities in recovery of loans and engagement of recovery agents, creating a more uniform and borrower-protective framework. The directions consolidate earlier instructions and strengthen requirements relating to recovery agents, borrower communication, data protection, training and grievance redressal.
Effective from January 1, 2027
The amended framework will apply to commercial banks, small finance banks, regional rural banks, cooperative banks, NBFCs, housing finance companies and other specified regulated entities.
Key Requirements for Banks
1. Board-approved recovery policy
Banks must have a comprehensive policy covering recovery practices, engagement and monitoring of recovery agencies, training, grievance redressal and data protection.
2. Due diligence and certification
Recovery agencies and agents will be subject to antecedent verification and periodic review. Recovery agents must obtain certification from IIBF or an IIBF-linked institute, with a transition period for entities newly covered by the certification requirement.
3. Strict limits on recovery practices
Abusive or threatening language, intimidation, public disclosure of a borrower’s dues, harassment of relatives or colleagues and excessive contact are prohibited. Recovery calls and visits should ordinarily take place between 8 a.m. and 7 p.m.
4. Greater transparency
Borrowers must be informed about the recovery agency and its representatives. Banks must also publish details of their empanelled recovery agencies on their websites and notify borrowers when an agency is changed.
5. Call recording and data protection
Recovery-related calls must be recorded, while borrower information must be restricted to what is necessary for recovery activities.
6. Lender remains responsible
Outsourcing recovery does not transfer responsibility away from the bank. The regulated entity remains accountable for the conduct of its recovery agents and must provide an effective grievance mechanism.
What Banks Should Do Now
Before January 2027, banks should review their recovery policies, verify and certify recovery agents, revise agency agreements, strengthen call-recording and data-protection systems, update borrower communications, and train frontline staff and recovery partners.
Key Takeaway
The RBI’s new framework marks a shift towards professional, transparent and accountable loan recovery. Banks can continue to pursue genuine recovery of dues, but recovery agencies must operate within clearly defined boundaries that protect borrower dignity, privacy and legitimate rights.
