Banks cannot disable mobile phones of defaulting borrowers: RBI proposal
What happened
RBI proposed revised draft directions prohibiting banks from disabling mobile phones of defaulting borrowers for personal, car, or home loan recovery. Banks can only restrict devices they directly financed, after 90 days past due with proper notices. Essential functions like emergency calls, internet access must remain active. Wrongful restriction attracts Rs 250/hour compensation. Recovery agents cannot use harsh methods, social media harassment, or abusive language. Implementation from October 1, 2026.
Why it matters
This RBI proposal addresses growing complaints of aggressive loan recovery practices where banks and recovery agents harass borrowers through technology-enabled restrictions and social pressure tactics. The central bank distinguishes between general loans (where phone disabling is completely prohibited) and device financing loans (where limited restrictions are permitted under strict conditions). The 90-day past due threshold aligns with NPA classification norms, ensuring recovery actions are proportionate. Essential service protection reflects the critical role mobile phones play in modern life - from emergency services to accessing government benefits. The Rs 250/hour compensation mechanism creates financial disincentive for wrongful actions. Documentation requirements for recovery calls aim to create audit trails and accountability. This regulatory intervention balances legitimate recovery rights of lenders with borrower protection, following global trends toward responsible lending practices. The October 2026 implementation timeline provides adequate preparation time for technology system modifications and staff training across the banking sector.
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