RBI proposes rules banning mobile phone restrictions in loan recovery

The Reserve Bank of India has proposed new rules to curb aggressive loan recovery practices, explicitly banning lenders from disabling or restricting a borrower's mobile phone to collect unpaid personal, car, or home loans. The central bank's revised draft guidelines, issued on Wednesday, would permit such technological restrictions only for the specific mobile device or tablet that was financed by the lender itself.

This move follows numerous complaints from borrowers regarding harassment by recovery agents, including the use of abusive language, excessive communication, and intimidation through social media. The proposed framework aims to establish a structured and technology-aware code of conduct for the recovery process.

Under the draft norms, a bank may only deploy technology to restrict a financed device if the associated loan is at least 90 days past due and the borrower has failed to cure the default despite receiving notices. The process requires a staged notice regime: a first notice must be sent after 60 days of default, allowing 21 days for repayment, followed by a second notice providing at least another week. Crucially, such action can only be taken if the loan...