Digital lending is growing rapidly in India. Smartphones, electronics, and small-ticket consumer loans are now being offered extensively through digital platforms. Alongside this growth, concerns around recovery practices, privacy, and borrowers’ rights have also increased.
Keeping this in mind, the RBI has introduced a new framework aimed at making the loan recovery process more balanced and transparent.
While the proposal allows financial institutions to adopt certain technical measures in limited situations, it also places strong emphasis on protecting borrowers’ essential needs and digital rights.
Let us understand in detail what this RBI proposal is and how it could impact banks, NBFCs, and common borrowers.
What’s Happening?
On 20 May 2026, the RBI issued revised framework guidelines for the ‘Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents’. One of the key proposals states that banks or financial institutions cannot completely block or disable a borrower’s mobile phone unless the same phone was purchased through the loan being financed.
India is one of the world’s largest mobile markets, with more than 1.16 billion mobile connections. According to reports, over one-third of consumer electronics products in the country are purchased through small-ticket loans.
As per the RBI proposal, any restriction on the phone can only be imposed if the loan remains overdue for 90 days. A notice must first be issued after the initial 60 days of non-payment, followed by an additional 21-day period. After this, a second notice must be given with at least one week’s time before any restriction is applied.
Most importantly, such an arrangement will only be valid if the borrower’s explicit consent has already been included in the loan agreement.
Main Features of the Proposed Rules
The RBI has placed borrower protection at the centre of this proposal. Even if any restriction is imposed on a phone, essential services such as internet access, incoming calls, emergency SOS features, and government alert services cannot be disabled.
If the borrower clears the outstanding dues, the bank or NBFC must remove the restriction within one hour. Failure to do so could lead to compensation of Rs 250 per hour being paid to the borrower. Additionally, banks and recovery agents will not be allowed to access any personal data stored on the locked phone.
The RBI has also taken a strict stance against online harassment and public shaming. Recovery agents will not be permitted to share borrowers’ pictures, videos, audio recordings, or personal information on social media platforms.
Borrower Protection and Lenders’ Responsibility
This proposal has been prepared based on feedback received on the draft issued in February 2026. The RBI has also expanded the definition of recovery agents, which now includes business correspondents involved in EMI collection.
Under the new rules, banks and NBFCs will be required to create a clear recovery policy that includes penalties for non-compliance.
Recovery-related activities will only be allowed between 8 AM and 7 PM. Additionally, borrowers must be informed before a recovery agent visits them. Call recordings related to recovery conversations must also be preserved for at least six months.
These rules will apply to Small Finance Banks, Regional Rural Banks, Cooperative Banks, NBFCs, and Housing Finance Companies. The RBI has proposed 1 October 2026 as the likely implementation date for these guidelines.
What Does This Mean for Investors?
This proposal is important for the banking and digital lending sector. In small-ticket consumer loans, the risk of default is relatively high, and in such cases, a controlled technical recovery system may provide additional security to financial institutions. The introduction of clear rules could reduce legal disputes, regulatory risks, and compensation-related issues, thereby strengthening trust in digital lending platforms.
If borrowers receive greater security and transparency, the adoption of digital credit could also increase further. Over the long term, this may support growth in the loan books of banks, NBFCs, and fintech companies. However, institutions may also need to make additional investments in system upgrades, data security, and contract management.
What’s Next?
The RBI’s proposal could become an important step towards balancing responsible lending with fair recovery practices in the digital era.
Public feedback on the proposal will be accepted until 31 May 2026, after which the final guidelines may be issued. In the future, the scope of such technical recovery measures could expand further, while still keeping borrowers’ privacy and basic rights at the centre of the framework.
In a country like India, with a massive mobile user base and rapidly growing digital lending market, this move could strengthen financial inclusion and make the digital credit ecosystem more trustworthy.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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