Strict Action: If You Don’t Pay Loan for a Phone Bought on EMI, Bank May Lock It Remotely; RBI Preparing Rules

RBI is preparing rules that may allow banks to remotely lock mobile phones if EMI payments are not made. The step aims to ease loan recovery but raises concerns over consumer rights.

The Reserve Bank of India (RBI) is planning to give more powers to banks and finance companies for recovering small loans. According to reports, if a customer fails to repay the loan taken to buy a mobile phone on EMI, banks will get the authority to lock the phone remotely. This move is being considered to make loan recovery easier. However, experts believe this may also lead to disputes regarding consumer rights.

In India, more than one-third of electronic goods, including mobile phones, are bought on small loans. As per telecom regulator data, India has over 1.16 billion mobile connections. Earlier, banks used to install a special app on the phone while giving the loan, which could lock the device in case of non-payment. Last year, RBI had stopped this practice. But after several consultations, RBI is now updating its Fair Practices Code.

Under the new rules, banks and finance companies will have to take the clear consent of customers before they can lock a phone. They will also be required to ensure that even if the phone is locked, the customer’s personal data remains safe.

Why this is being done

The main reason is to make small loan recovery easier. If these rules are implemented, companies like Bajaj Finance, DMI Finance, and Cholamandalam Finance will benefit, since they give a large number of small-ticket loans. These loans are often below ₹1 lakh, where the chances of default are higher. Reports suggest that non-banking financial companies (NBFCs) provide nearly 85% of such loans. With the power to lock phones, lenders may also become more open to giving loans to customers with weak credit history.

Borrowing for smartphones and home appliances has skyrocketed to 37% in 2024, a massive leap from just 1% in 2020.

The concerns

Consumer rights activists are raising concerns about this move. They argue that using technology in this way could harm people. For example, Shrikanth L, founder of the organisation Cashless Consumer, said that locking a phone will deny people access to their daily needs. Mobile phones are no longer just for communication — they are essential for education, jobs, banking, and other financial services. Blocking access to such a vital device could become a tool for pressuring customers rather than helping them.

The RBI wants to make it easier for lenders to recover small loans by allowing remote phone locking, but at the same time it plans to introduce safeguards like customer consent and data protection. While this may help finance companies, it could also raise big debates about consumer rights.