RBI spells out norms to keep loan recovery agents on leash

The Reserve Bank of India (RBI), in a draft guideline issued on Thursday, has proposed to restrain bank employees or recovery agents to desist from employing harsh methods towards loan recovery.

Accordingly, they would be prohibited from using minatory or abusive language, sending ‘inappropriate’ messages either on mobile or through social media, making excessive calls to the borrower or guarantor, and calling outside prescribed hours and making threatening or anonymous calls.

Intimidating or harassing the borrower or guarantor or relatives, friends, co-workers either verbally or physically, including acts intended to humiliate them publicly will be classified as ‘harsh methods’.

No bank employee or recovery agent can use or issue threat of violence or other similar means to harm the borrower or guarantor or their family, assets or reputation, and make false or misleading representations to the borrower or guarantor, especially about the extent of the debt or the consequences of non- repayment, according to the provisions of the draft guidelines of the Second Amendment Directions, 2026, which relates to responsible business conduct by banks and other regulated entities towards engagement of recovery agents.

All banks must have a dedicated mechanism for redressal of recovery related grievances. To be called the Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Second Amendment Directions, 2026, these directions will come into effect from July 1, 2026.

The RBI has invited public comment to the draft guidelines. With recovery agents found to be deploying harsh measures, the RBI has decided to issue comprehensive instructions on conduct related matters in recovery of loans and engagement of recovery agents to all regulated entities.

This was proposed during the last monetary policy announcement.

For responsible lending conduct, all banks are required to put in place a policy on recovery of loans, engagement of recovery agents for recovery of loan dues, and taking possession of security.

The policy will cover aspects related to eligibility and due diligence criteria for engagement of recovery agents, specified activities, code of conduct, and performance evaluation standards, the RBI said.