The Reserve Bank of India (RBI) has released draft directions on the ‘Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents’. This move expands and updates existing guidelines, aiming to ensure fair practices across a broader set of institutions. Originally limited to Scheduled Commercial Banks (excluding Regional Rural Banks) and Housing Finance Companies (HFCs), these new instructions will apply to all Regulated Entities (REs), promoting ethical recovery processes nationwide.
Background and Scope
RBI periodically reviews recovery frameworks to protect borrowers while enabling efficient loan recovery. The draft builds on prior circulars, addressing gaps in borrower treatment and agent conduct. Key expansions include:
- Wider Coverage: Extends to all REs, such as Non-Banking Financial Companies (NBFCs), Small Finance Banks, and others, beyond just SCBs and HFCs.
- Holistic Focus: Covers the entire recovery lifecycle, from initial engagement to resolution, emphasizing borrower rights under the RBI’s customer protection charter.
This aligns with RBI’s push for ethical lending amid rising NPAs and digital recovery trends.
Key Provisions in the Draft
The draft outlines comprehensive norms to prevent harassment and ensure transparency. Here’s a breakdown:
- Fair Treatment of Borrowers:
- REs must adopt a borrower-centric approach, avoiding coercive tactics.
- Recovery efforts limited to reasonable hours (e.g., 7 AM–7 PM) and no visits on holidays.
- No public shaming, threats, or intimidation; digital communications must be polite and documented.
- Conduct of Employees and Agents:
- Strict code of conduct prohibiting abusive language, physical force, or unauthorized property seizure.
- Agents cannot contact family members excessively or impersonate authorities.
- Engagement and Due Diligence for Recovery Agents:
- REs must perform thorough background checks before empaneling agents.
- Agents need valid contracts specifying adherence to RBI guidelines.
- No engagement of agents with criminal records or prior violations.
- Training Requirements:
- Mandatory annual training for lender staff and agents on fair practices, borrower rights, and grievance redressal.
- Certification programs to ensure competency.
- Grievance Redressal and Monitoring:
- REs required to have dedicated mechanisms for borrower complaints.
- Regular audits and reporting to RBI on recovery practices.
For reference, the full draft is available on the RBI website here (search for the latest notification dated 12th February 2026).
Implications for Regulated Entities
Banks and NBFCs must prepare for implementation, expected after a 30–60 day public consultation period. Non-compliance could attract penalties under RBI’s penal framework.
| Aspect | Current Guidelines | Draft Changes |
| Applicability | SCBs (ex-RRB), HFCs | All REs |
| Agent Due Diligence | Basic checks | Comprehensive background verification |
| Training | Ad-hoc | Mandatory annual certification |
| Borrower Contact | Time-bound | Strict no-harassment rules + digital norms |
This draft strengthens borrower safeguards, potentially reducing litigation and enhancing trust in the financial system. REs should review internal policies now, especially for digital recovery tools.
Next Steps for Compliance
- Review and Feedback: Submit comments to RBI by the deadline (check official notification).
- Internal Audit: Assess current recovery agents and processes.
- Training Rollout: Integrate into staff development programs.
Stay tuned for the final directions, which could reshape recovery operations in Indian banking.
