The Reserve Bank of India (RBI) has introduced amended rules that impose restrictions on the 'mobile lock' practice used by mobile phone financiers for loan recovery. Under the reworked draft regulation, lenders can restrict financed devices only after obtaining explicit contractual consent and following a 90-day default cycle. This cycle includes a staged notice regime: a 60-day notice and a 7-day notice before any action. The regulations mandate that core device functions, including incoming calls, internet access, SOS capabilities, and public alerts, must remain accessible even during restrictions.
Penalty for Delayed Unlock
Banks are required to unlock devices within one hour of payment. Failure to do so will result in a penalty of Rs 250 per hour. This provision aims to ensure prompt restoration of services once the borrower clears the dues.
Structured and Technology-Aware Framework
The May 2025 draft introduces a more structured and technology-aware framework compared to the earlier February 2026 version. While both drafts aim to curb harsh recovery practices, the May draft shifts focus from individual agents to organised recovery agencies. It refines operational timelines and adds detailed rules for technology-backed recovery. Lenders are now barred from accessing borrower data on devices and are prohibited from sharing creditor information on social media, thereby strengthening privacy alongside recovery norms.
Wider Definition of Recovery Agents
The definition of recovery agents has been widened to include those engaged in routine EMI collection. A formal borrower compensation provision has also been introduced. The scope now explicitly includes business correspondents engaged in recovery activities, closing regulatory gaps.
Enhanced Customer Protection
Customer protection norms have been broadened, with fair-conduct provisions applying to routine EMI collections where borrowers are not in default. To facilitate transition, the RBI has deferred implementation by three months from July 1, 2026, to October 1, 2026.
Communication and Notification Requirements
Borrowers must be informed via text or email at least one day before the first recovery visit. If digital contact is unavailable, a physical letter must be sent at least three days in advance. Affected borrowers must be immediately notified of any agency terminations. The code of conduct for recovery agents and bank staff has also been tightened.
Record Keeping and Contact Hours
Banks must retain call recordings for at least six months, or longer if disputes are sub-judice. Contact hours remain limited between 08:00 and 19:00. The definition of harsh methods now includes misuse of social media by sharing borrower details or recordings.
Compensation Mechanisms
Banks must embed compensation mechanisms in their policies to reimburse borrowers or guarantors for losses arising from violations of these directions. These measures aim to balance recovery practices with borrower rights, ensuring a fair and transparent process.
