India's once-booming smartphone financing market is showing clear signs of a slowdown. The sector, which grew rapidly on the back of easy no-cost EMIs and digital lending, is now experiencing a contraction in both loan values and active accounts. This shift coincides with a crucial regulatory review by the Reserve Bank of India (RBI) concerning the controversial practice of remotely locking financed devices when borrowers default.
The Numbers Tell the Story: A Market in Contraction
Recent data from credit bureau CRIF High Mark paints a clear picture of the downturn. As of September 19, 2025, outstanding consumer-durable loans, a major portion of which are for smartphones, stood at ₹22,279 crore. This marks a significant decline of 4.23% from the ₹23,264 crore recorded a year earlier. Furthermore, the number of active loan accounts dropped by 4.7% year-on-year in the September quarter of FY2026, falling to 95.5 million nationwide.
This cooling off period follows years of explosive growth fueled by fintech lenders, telecom operators, and device makers who made credit accessible, especially for first-time or 'new-to-credit' users. For many, a financed smartphone served as their inaugural step into the formal credit system, helping build a credit history for future, larger loans.
The Heart of the Debate: Remote Locking and Digital Collateral
The current slowdown is intrinsically linked to the RBI's ongoing evaluation of remote device-locking mechanisms. This feature, which allowed lenders to digitally disable a smartphone after a loan default, was effectively paused. The halt came due to mounting concerns over user privacy, data security, and the profound social impact of cutting off a device that has become a lifeline.
In today's India, a smartphone is far more than a communication tool. It is a gateway to essential services like UPI payments, Aadhaar-linked benefits, educational platforms, and gig economy work. Nearly half of all consumer durable loans are now tied to smartphones, embedding them deeply into the nation's financial and digital architecture. The tension, therefore, pits the lender's need for enforceable collateral against the borrower's right to continuous digital access, which is often a prerequisite for economic participation.
Seeking a Middle Path: A New Regulatory Framework
Policymakers are now tasked with designing a framework that encourages repayment discipline without severing critical digital access. A binary choice between allowing full lockouts or banning enforcement entirely is seen as inadequate. Early policy drafts suggest a more calibrated, middle path.
The proposed approach envisions allowing remote locking only under strict conditions. Key aspects include:
- Informed consent obtained clearly at the time of taking the loan.
- Activation only after repeated missed payments, not a single default.
- Restriction of non-essential functions only, not a complete device shutdown.
- Protection for essential services like calls, SMS, UPI banking, emergency services, and key government apps.
The framework also emphasizes user rights under the Digital Personal Data Protection Act and mandates immediate unlocking once dues are cleared. Examples from Samsung Finance+, Airtel, and Jio (which applied it to JioPhone Next since 2021) show that such controlled mechanisms can operate, but they remain subject to the evolving regulatory landscape.
Balancing Risk and Inclusion: The Stakes for India's Digital Future
The RBI's final decision carries substantial weight. An overly restrictive rule could make lenders see the smartphone financing sector as too risky, leading to a further credit contraction that would hit first-time borrowers the hardest. Conversely, an overly permissive rule on harsh enforcement could disproportionately harm vulnerable users whose livelihoods depend on their phones.
The challenge is to preserve the financial inclusion gains of the past decade while maintaining financial stability. India has navigated similar dilemmas in microfinance and digital lending, often finding balanced solutions. If the new framework successfully incorporates proportional enforcement, clear consent, privacy safeguards, and transparent protocols, it could set a global standard for responsible tech financing in emerging economies.
As the pioneer of this analysis, Shriram Subramanian, Founder and MD of InGovern Research Services, highlights that the slowdown in smartphone financing risks stalling a core driver of digital inclusion—a sector also vital to the Make-in-India programme. The urgency for the RBI is clear: to quickly establish an updated framework that keeps credit channels open for millions while protecting their essential digital access to the economy.
