The Reserve Bank of India (RBI) has issued a comprehensive set of directions to regulate the conduct of banks and their recovery agents, prohibiting coercive and abusive recovery practices while strengthening safeguards for borrowers.
The new directions bar bank employees and recovery agents from using intimidation, harassment or public humiliation during loan recovery, and require banks to establish robust oversight mechanisms, grievance redressal systems and stricter due diligence before appointing recovery agencies.
Harsh recovery practices prohibited
The RBI has specified a list of practices that will be treated as unacceptable during the recovery process.
These include the use of abusive or threatening language, excessive calls or messages, anonymous or intimidating phone calls, and contacting borrowers outside prescribed hours. Recovery agents are also barred from harassing borrowers’ relatives, friends, referees or co-workers, using or threatening violence, making misleading claims about loan dues, and publicly humiliating borrowers.
The central bank has also prohibited recovery agents from posting borrowers’ personal details or audio and video recordings on social media or sending inappropriate messages through mobile phones or social media platforms.
Banks to frame recovery policies
Under the new framework, banks must formulate a comprehensive recovery policy covering triggers for initiating recovery, graded recovery actions, code of conduct for employees and recovery agents, procedures in the event of a borrower’s death and a structured mechanism for dealing with financially distressed borrowers before initiating recovery proceedings.
Banks must also define eligibility criteria for appointing recovery agencies, establish performance evaluation standards and conduct periodic inspections and audits to ensure regulatory compliance. The policy should also prescribe penal action against non-compliant recovery agencies.
Tighter norms for recovery agents
The RBI has mandated banks to carry out due diligence and periodic background verification of recovery agents.
Recovery agencies can deploy only those agents who have completed the prescribed debt recovery training programme and obtained certification from the Indian Institute of Banking and Finance (IIBF) or an institute affiliated with it. Banks are also required to implement a formal code of conduct for recovery agents and obtain undertakings from agencies to comply with it.
Greater transparency for borrowers
Banks will now have to publish an updated list of empanelled recovery agencies on their websites, including their addresses, type of agency, engagement period and purpose of engagement.
Borrowers must also be informed at least one day before a recovery agent makes the first in-person visit, with details of the agency handling the case.
Recovery agents visiting borrowers must carry identity cards, authorisation letters and copies of the bank’s notice, while all recovery-related communications must include details of the bank’s grievance redressal officer.
Call recordings, customer privacy
The RBI has directed banks to maintain records of the time, number and content of recovery-related calls for at least six months, or longer where legal proceedings are pending. Borrowers should also be informed that calls are being recorded.
Banks must ensure customer information shared with recovery agents is limited to what is necessary for recovery and put in place safeguards to prevent misuse of borrower data.
Restrictions on technology-based recovery
The central bank has also curbed the use of technology-based recovery tools that disable mobile devices.
Banks cannot remotely block or restrict the functionality of a borrower’s mobile phone, tablet or laptop unless the loan was specifically taken to finance that device and the loan agreement explicitly permits such action.
Even then, restrictions can begin only after the loan becomes 30 days overdue following due notice to the borrower, while full restrictions can be imposed only after 60 days of default. Outgoing calls cannot be blocked before the account becomes 60 days past due.
The RBI said the final directions incorporated stakeholder feedback received on the draft guidelines issued in May 202