Once an EMI is missed, the traditional loan recovery process can quickly turn into a high-pressure exercise. Borrowers who default are often subjected to automated reminders, calls and even field visits.
"The truth is that recovery remains one of the most broken parts of the lending ecosystem," said Ananth Shroff, founder and CEO of DPDzero, an AI-powered debt collection platform. "Once an EMI is missed, borrowers are often reduced to a DPD (days-past-due) bucket and pushed through a standard sequence of messages, repeated calls, outsourced agents, and aggressive methods."
Lenders routinely prioritize call volumes over understanding why a borrower failed to pay, making recovery distressing, he added.
To curb such practices, the Reserve Bank of India (RBI) has introduced an extensive framework defining accountable recovery. The RBI, under its framework, bans eight harsh tactics.
"These restrictions are intended to ensure that recovery efforts remain professional and do not cause unnecessary distress, intimidation or privacy violations," explained Sarika Grover, co-founder of LoansJagat, a financial services marketplace.
Eight red lines
Off-limit practices include abusive language, posting borrower details on social media, sending inappropriate messages, calling outside permitted hours, making anonymous threats, intimidating family members or colleagues, threatening physical violence, and making misleading claims about the consequences of debt. Lenders must also check whether their internal recovery targets incentivize agents to use such coercive methods.
Under the new directives, strict rules govern the timing, frequency and manner of recovery, noted Grover. Calls, messages and in-person visits are allowed strictly between 8 am and 7 pm. Contact outside this window requires the borrower's express approval. Excessive calling or repeated same-day contact after a response is given counts as a violation.
All recovery calls must be recorded, with prior disclosure to the borrower. Agents must remain civil and avoid sensitive occasions. Before any field visit, lenders must notify the borrower at least one day in advance, naming the agency.
Further, agents must be certified by the Indian Institute of Banking and Finance (IIBF) and carry an official ID, authorization letter, notice copy and grievance officer contact details.
Borrowers can select their preferred meeting place and communication channel, potentially preventing unannounced doorstep visits.
Lenders accountable
Banks and NBFCs, on the other hand, retain full legal responsibility for the conduct of third-party agencies and must compensate borrowers harmed by agent misconduct.
Shroff highlights that new-to-credit borrowers reached 4.4 crore in the 12 months ending February 2026, accounting for 17.8% of all loan originations.
"For borrowers, that means no more unknown callers, no surprise field visits, no pressure through family members or social contacts," Shroff pointed out. "They will know who is contacting them, why, and exactly where to raise a grievance if something goes wrong."
A healthy credit system needs repayments; that has not changed. "The framework is not asking lenders to go easy on defaulters. It is asking them to be effective. The real challenge now is enforcement at scale," he concluded.
RBI's new framework calls for greater transparency, clearer boundaries for recovery and greater accountability from lenders, while seeking to protect borrowers from harassment.