The Reserve Bank of India (RBI) has barred banks and non-banking financial companies (NBFCs) from using technology to lock or disable borrowers' mobile phones, tablets or other electronic devices as a loan recovery tool, except in cases where the loan was specifically used to finance the purchase of that device. The revised directions will take effect from January 1, 2027.
The move strengthens borrower protections while preserving a limited exception for gadget financing, where lenders may restrict certain device functions only after following a prescribed recovery process. The RBI said the exception is intended to apply solely to loans used to purchase the concerned device and cannot be extended to personal, vehicle, home or other categories of credit.
Under the framework, lenders can impose restrictions only if the loan agreement explicitly permits such action, the borrower has defaulted for at least 90 days, and two notices have been served. The first notice must be issued after the account becomes 60 days overdue, providing at least 21 days to repay, followed by a second notice giving at least another seven days before restrictions can be activated.
Even in gadget-financing cases, lenders cannot disable essential functionalities such as internet access, incoming calls, emergency services or government safety notifications. The RBI has also required lenders to restore restricted functionalities within one hour after the borrower clears the overdue amount.
If a lender wrongly restricts a device or delays restoring its functionality after repayment, it must compensate the borrower at the rate of ₹250 per hour until the issue is resolved, according to the revised directions.
The central bank also tightened the broader loan recovery framework by requiring fair conduct from recovery agents, prohibiting harassment, mandating recorded communications in specified situations and strengthening accountability for lenders engaging third-party recovery agencies. The measures are aimed at making loan recovery more transparent while protecting borrower rights.
The revised framework follows stakeholder feedback on earlier draft directions issued in May 2026. Industry participants had sought regulatory clarity on the use of technology-based recovery mechanisms for consumer durable financing, prompting the RBI to narrow the scope of permitted device restrictions while introducing additional safeguards.
The new rules will come into force on January 1, 2027, giving regulated entities time to update loan agreements, technology systems and recovery processes to comply with the revised requirements.
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