The Reserve Bank of India (RBI) has released new guidelines for mobile finance companies. As per the new guidelines, finance companies can’t resort to forced Loan Recovery measures. Now, the Finance companies can’t lock the mobile phones of users defaulting on loan EMIs.
Right now, if a customer defaults on loan EMIs for his/her mobile phone, the finance companies lock his/her mobile phone remotely.
Under the revised draft rules, banks can restrict financed mobile devices only if the borrower has given clear consent in the loan agreement and after a 90-day default period.
Banks must also follow a notice process that includes a 60-day notice and a final 7-day notice. Even if a device is restricted, important functions such as incoming calls, internet access, SOS services, and public emergency alerts must continue to work.
The rules also state that banks must unlock the device within one hour after payment is made. If they fail to do so, they will have to pay a penalty of Rs 250 per hour.
The new draft introduces a more structured and technology-focused framework compared to the February 2026 version. While both drafts were aimed at stopping harsh recovery practices, the May 2026 draft focuses more on organised recovery agencies instead of individual recovery agents.
It also provides clearer timelines and detailed rules for technology-based recovery methods.
The rules also prohibit lenders from accessing borrower data stored on mobile devices. Sharing borrower or creditor information on social media has also been banned, strengthening customer privacy protections.
The definition of recovery agents has been expanded to include people involved in regular EMI collection. A formal compensation system for borrowers has also been introduced.
The revised rules now clearly include business correspondents involved in recovery activities, helping close earlier regulatory gaps. Customer protection rules have also been expanded. Fair conduct guidelines will now apply even during routine EMI collections where borrowers have not defaulted.
To allow banks and lenders time to prepare, the RBI has postponed the implementation date by three months, from July 1, 2026, to October 1, 2026.
Borrowers must be informed through SMS or email at least one day before the first recovery visit. If digital communication is not available, lenders must send a physical letter at least three days in advance. Borrowers must also be informed immediately if a recovery agency handling their case is terminated.
The code of conduct for recovery agents and bank staff has also been made stricter. Banks will have to keep call recordings for at least six months, or longer if a dispute is pending in court. Recovery agents can contact borrowers only between 8:00 AM and 7:00 PM. The definition of harsh recovery methods now also includes misuse of social media, such as sharing borrower details or call recordings online.
Banks must also include compensation mechanisms in their policies to reimburse borrowers or guarantors for any losses caused by violations of these rules.
➡️ Bank Loan EMI Calculator: Calculate EMI for Home Loan, Car Loan, Gold Loan, Business Loan
