RBI proposes stricter norms on loan recovery, bans calls after 7 pm

The Reserve Bank of India (RBI) has proposed sweeping changes to the rules governing loan recovery, introducing tighter safeguards for borrowers and clearly defining what constitutes coercive or “harsh” practices by lenders and their agents.

The draft directions, which will come into force from 1 July, will apply to all commercial banks, small finance banks, payments banks, regional rural banks and local area banks. The move follows an announcement made by the RBI Governor in last week’s monetary policy statement.

Under the revised framework, lenders will be required to adopt a formal, board-approved policy for engaging recovery agents. The policy must set out clear standards of conduct, procedures for appointment, and a structured grievance redress mechanism for customers. Recovery agents will no longer operate informally; banks will be held accountable for their actions.

The RBI has specified that borrowers or guarantors may only be contacted between 8 am and 7 pm. Any request by a borrower to avoid calls or visits at a particular time should generally be respected.

Recovery agents must deal directly with the borrower or guarantor and are prohibited from contacting relatives, friends, referees or colleagues. Interactions should ordinarily take place at the borrower’s chosen location, or at their residence if no preference is indicated. If the borrower is unavailable there, contact may be made at their workplace.

The central bank has also barred calls or visits during sensitive occasions such as bereavements, natural disasters, weddings or religious festivals.

For microfinance loans, repayments should be collected at a mutually agreed central location. However, if a borrower fails to attend on two consecutive occasions, field staff may visit the borrower’s home or workplace.

Agents must behave courteously and maintain decency at all times. Only individuals formally authorised by the bank may undertake recovery visits. Any written communication from an agent must receive prior approval from the bank, and proper receipts must be issued for all collections.

The RBI has explicitly listed practices that will be deemed “harsh” and therefore prohibited. These include the use of threatening or abusive language, excessive or repeated calls, contact outside permitted hours, anonymous or intimidating calls, and sending inappropriate messages via mobile phones or social media.

The guidelines also forbid harassment or humiliation of borrowers or their associates, intrusion into privacy, and any form of violence or threat to harm a borrower’s family, assets or reputation. Misrepresentation of the extent of debt or the consequences of non-payment has also been categorised as unacceptable behaviour.

Banks will be required to establish a dedicated system to handle complaints related to recovery practices. Details of this mechanism must be shared with borrowers as part of the loan agreement.

The proposed overhaul signals the RBI’s intent to strengthen borrower protection while ensuring that recovery processes remain transparent, accountable and in line with established standards of conduct.

With agency inputs