RBI tightening loan recovery rules

In July 2026 the Reserve Bank of India issued final prudential norms governing how banks, small‑finance banks and NBFCs handle specified non‑financial assets (SNFAs) acquired in loan‑resolution. The rules, effective 1 Oct 2026, bar resale of SNFAs to defaulting borrowers, prohibit recognition of unrealised interest, require reversal of unrealised income by Sept 2027, mandate biennial distress‑sale revaluation and immediate loss recognition, and set a seven‑year disposal deadline with public‑auction preference.

In August 2026 the RBI announced a circular effective 1 Jan 2027 that bans banks and NBFCs from disabling or remotely locking borrowers’ smartphones, tablets or laptops, except when the device was financed by the same lender. Even then, essential functions—calls, SMS and emergency SOS—must remain active and any restriction must be gradual. Lenders must compensate ₹250 per hour if a locked device is not unlocked within one hour after repayment, and recovery agents are barred from harassing calls before 8 a.m. or after 7 p.m., from using social‑media to defame borrowers, and must carry identification and an authorization letter. Device‑locking technology must be certified by the OEM or OS provider, and data access is limited to what is strictly necessary for recovery.

Further RBI guidance released on 6 August 2026 reiterated the device‑locking ban and clarified the compensation mechanism, while a 7 August 2026 notice expanded borrower‑protection measures. It requires lenders to publish authorized‑agent lists, record all recovery calls for at least six months, set up separate grievance mechanisms, and prohibits agents from threatening, harassing, or disclosing personal information. Violations trigger compensation obligations for the institutions.

Together, these steps illustrate the RBI’s expanding regulatory push to curb aggressive recovery practices, protect borrower privacy and dignity, and ensure more prudent treatment of distressed loan assets.