The Reserve Bank of India (RBI) on 6 August said its norms on loan recovery and the engagement of recovery agents will now take effect from January 2027, three months after the original deadline. The guidelines are meant to prevent lenders and their agents from going too far in pursuit of defaulters. Mint explains.
Why did RBI introduce new guidelines?
Loan recovery has emerged as a contentious issue in recent years, bringing back memories of the late 2000s, when certain private banks employed harsh methods. Plans to review guidelines on recovery agents were first announced on 6 February. The idea was to review and harmonize all the norms around engagement of recovery agents and recovery of loans. The first set of draft guidelines came six days later, while the second iteration was released on 20 May. The final norms were then made public on 6 August. Like other regulators, RBI first announces a draft of an intended guideline and invites feedback. The final norms are issued after feedback.
What does RBI want lenders to do?
The regulator wants banks to monitor and control the activities of their recovery agencies and ensure that they do not engage in activities that damage the bank’s integrity and reputation. Moreover, a bank that engages recovery agencies will have to conduct periodic reviews of the mechanism to learn from experience and effect improvements. It also wants banks to maintain oversight so that the recovery agency works only with agents who have obtained a debt-recovery certificate from Indian Institute of Banking and Finance (IIBF). Banks or the recovery agencies they work with will also have to verify the antecedents of recovery agents before engaging them and periodically thereafter.
What are some of the things off-limits for recovery agents?
The central bank said a bank’s employee or a recovery agent cannot use harsh methods for collection or recovery. It provided an indicative list of what can be termed harsh, including the use of abusive language and the use of social media to post video and audio recordings or personal details of the borrower or guarantor. Sending inappropriate messages either on mobile or through social media, excessive calling or messaging, and threats will be considered harsh.
What does this mean for banks?
Banks will now have to keep a close watch on how recovery agencies treat borrowers and defaulters and nip any untoward situation in the bud. The August norms will modify the broader guidelines on banks' responsible business conduct issued in November 2025. Those guidelines placed the onus for the conduct of recovery agents on banks. RBI has said it will take complaints against banks' recovery agents seriously. For the first time, the regulator has drawn a clear and enforceable line between recovery and harassment, said Ananth Shroff, co-founder and chief executive of debt collection platform DPDzero. He said the real challenge is ensuring these safeguards are followed consistently across millions of borrower interactions.
How will it impact borrowers?
Borrowers can now breathe easy that recovery agents—if the norms are well enforced—will not be able to harass them. In September 2022, RBI asked Mahindra & Mahindra Financial Services (Mahindra Finance) to stop recoveries through external agencies after the death of an individual allegedly in the recovery process. The restrictions were lifted four months later. The new norms are expected to curb such incidents. The regulator has also said banks will need to have a policy for their employees or recovery agents to take possession of a security from a defaulter. In fact, it said the policy should include provisions for compensation to borrowers for losses arising from actions that violate the guidelines.