No more harassment calls for loan recovery? RBI to bring tough framework from July 1, 2026
Feb 12, 2026
Synopsis
The Reserve Bank of India is introducing stricter loan recovery rules for banks, focusing on borrower protection and transparency. These new directions, set to take effect from July 1, 2026, aim to prevent harassment and ensure fair treatment during the recovery process. Banks must implement mandatory recovery policies and adhere to a code of conduct for recovery agents.
The Reserve Bank of India (RBI) is set to tighten the rules on how banks recover loans from borrowers and use recovery agents. The central bank has issued a draft called RBI (Commercial Banks – Responsible Business Conduct) Second Amendment Directions, 2026, which focus on borrower protection, transparency, and preventing harassment during loan recovery. The draft came after Finance Minister Nirmala Sitharaman announced the expected reforms in loan recovery during her Budget 2026 speech early this month.
The draft Amendment Directions are open to feedback and can be submitted by the regulated entities and members of public and other stakeholders on or before March 6, 2026, the RBI said in a statement. Once approved by the government and notified, the rules are set to come into effect from July 1, 2026.
The has also issued drafts for small finance banks, NBFCs, Urban Co-operative banks, Regional rural banks etc.
Here are the key reforms that the draft is suggesting-
1) Mandatory recovery policy for banks
2) Stricter rules for hiring recovery agents
3) Transparency for borrowers
4) Fair treatment during recovery
5) Clear rules on repossession of assets
6) Monitoring of recovery agents
7) Code of conduct for recovery agents
8) Explicit ban on harassment
9) Grievance redressal mechanism
10) Compliance with other rules
How will banks ensure fair treatment of borrowers during loan recovery under the new RBI rules?
Rules for fair treatment of borrowers during recovery-
• A bank should put in place a mechanism for identification of the borrowers facing repayment-related difficulties, providing them with necessary guidance.
• A bank shall ensure that the disclosure of borrower’s information to its employees recovery agents is limited to the extent required to enable them to discharge their loan recovery related duties.
• Banks must publish a list of empanelled recovery agents on their branches, appas and websites., apps
• While assigning any recovery related activities on its behalf, the bank shall obtain an undertaking from its employees/recovery agents that they agree to abide by its Code of Conduct and other policies.
• Banks need to inform borrowers before assigning a recovery agent.
• Where a grievance has been lodged by a borrower, the bank shall not forward the concerned recovery case to an employee/recovery agent till it finally disposes off the grievance. However, where the bank is convinced, with appropriate evidence, that the borrower is making frivolous / vexatious complaints to avoid recovery, it may continue with the recovery proceedings even if a grievance is pending with it.
• A bank shall document the time and number of calls made by its employee/recovery agent to the borrower/guarantor for recovery of loan dues. Further, the bank shall ensure that there is a recording of the content/text of the calls made by the employee/recovery agent to the borrower/guarantor and vice-versa. Further, the bank shall take reasonable precautions such as intimating the borrower/guarantor that the conversation is being recorded, etc.
• A bank shall ensure that the recovery targets or the structure of incentives in the contract with the recovery agent do not induce adoption of harsh recovery practices.
• A bank may use written communications, telephonic reminders or visits by a bank’s representatives to the borrower’s place or residence as follow up measures for collection / recovery of loans. However, the bank shall initiate any legal or other recovery measures including taking possession of security only by giving due notice in writing as per applicable statutory provisions. Accordingly, the bank shall not initiate any legal action as a first resort for the collection/recovery of loan dues/possession of security.
What are the do’s and don’ts for recovery agents while dealing with borrowers?
A bank shall ensure that its employee/agent engaged in activities related to the collection/ recovery of loan dues adheres to the following:
(1) Respect for borrower’s privacy
An employee/recovery agent shall interact only with the borrower or the guarantor and shall not approach any other relatives/contacts of the borrower.
(2) Maintaining hours of contact
An employee/recovery agent shall contact/visit the borrower/guarantor only between 08:00 hours and 19:00 hours.
Further, the borrower’s request to avoid call/visit at a particular time shall be honoured in normal circumstances.
(3) Place of contact
An employee / recovery agent shall ordinarily contact a borrower at the place of the borrower’s choice and in the absence of any specific choice, at the place of his/her residence and if unavailable at his/her residence, then at the place of business/occupation.
4) Avoiding recovery calls/visits during inappropriate occasions
An employee/recovery agent shall avoid inappropriate occasions such as bereavement in the family or such other calamitous occasion, or marriage functions, festivals, etc. for making calls/visits to collect/recover loan dues.
(5) Designated place for collection/recovery of microfinance loans
In case of microfinance loans, collection/recovery shall be made at a designated/central designated place decided mutually by the borrower and the bank. However, field staff shall be allowed to make collection/recovery at the place of residence or work of the borrower if the borrower fails to appear at the designated/central designated place on two or more successive occasions.
6) Interaction with borrower
An employee/recovery agent shall interact with the borrower in a civil manner. Further, he/ she shall maintain decency and decorum during visits to the borrower’s place for collection/recovery of loan dues.
(7) Visit to borrower’s premises
Only the representative(s) authorised by the bank shall visit the borrower’s premises for activities related to the collection/recovery of loan dues.
(8) Approval for written communication
Written communication, if any, sent by an employee/recovery agent to the borrower/guarantor shall have the approval of the bank.
(9) Issue of acknowledgement/receipt
An employee/recovery agent shall promptly give proper acknowledgement/receipt on the collection/recovery of loan dues from the borrower/guarantor.
Which recovery practices has RBI strictly banned for banks and recovery agents?
The bank’s employee, recovery agent should not engage in any harsh methods towards recovery, the RBI document said.
Without limiting the general application of the foregoing, following practices shall be deemed as harsh:
(1) Use of minatory or abusive language;
(2) Sending inappropriate messages either on mobile or through social media;
(3) Excessively calling the borrower/guarantor and/or calling outside the prescribed hours;
(4) Making threatening and/or anonymous calls;
(5) Intimidating or harassing the borrower/guarantor and/ or his/her relatives, referees, friends, or co-workers in either verbal or physical manner, including acts intended to humiliate them publicly or intruding upon their privacy;
(6) Use or threat, violence or other similar means to harm the borrower/guarantor or their family/assets/reputation;
(7) Making false or misleading representations to the borrower/guarantor, especially about the extent of the debt or the consequences of nonrepayment.
[The Business Standard]
