RBI Issues Revised Draft Amendment Directions on ‘Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents’

The Reserve Bank of India issued revised draft amendment directions on the conduct of regulated entities in the recovery of loans and the engagement of recov...

What Happened

The Reserve Bank of India issued revised draft amendment directions on the conduct of regulated entities in the recovery of loans and the engagement of recovery agents (Press Release 2026-2027/298).
The revised directions follow an earlier draft issued on February 12, 2026 (pursuant to the Statement on Developmental and Regulatory Policies dated February 6, 2026), for which substantial stakeholder feedback was received.
The revised draft specifically incorporates feedback on technology-based recovery mechanisms, including device-locking features on financed mobile handsets in default situations.
The directions apply to nine categories of regulated entities (REs): Commercial Banks, Small Finance Banks, Local Area Banks, Regional Rural Banks, Urban and Rural Co-operative Banks, All India Financial Institutions, Non-Banking Financial Companies (NBFCs), and Housing Finance Companies.
Public comments are invited through the RBI's "Connect 2 Regulate" portal or via email to mcsdorfeedback@rbi.org.in, with a deadline of May 31, 2026.

Static Topic Bridges

Reserve Bank of India's Regulatory Powers Under Banking Regulation Act, 1949

The RBI derives its authority to issue directions to regulated entities primarily from the Banking Regulation Act, 1949 (Section 21, 35A) and the Reserve Bank of India Act, 1934 (Section 45-JA for NBFCs). These powers allow the RBI to issue binding directions on credit policy, lending practices, and customer service standards.

Section 35A of the Banking Regulation Act empowers the RBI to issue directions to banking companies in public interest or to prevent affairs prejudicial to depositors.
Section 45-JA of the RBI Act grants the RBI authority to give directions to all NBFCs.
The RBI's regulatory jurisdiction extends to over 100,000 registered entities including commercial banks, cooperative banks, NBFCs, and housing finance companies.

Connection to this news: The revised recovery directions are issued under these statutory powers, making compliance mandatory for all nine categories of regulated entities once the final directions are notified.

Fair Practices Code (FPC) and Borrower Protection Framework

The RBI introduced the Fair Practices Code for lending institutions in 2003, establishing minimum standards for transparent and non-coercive lending and recovery. It covers loan documentation, interest rate disclosure, and recovery conduct norms.

Recovery agents can only contact borrowers between 8:00 AM and 7:00 PM; contact outside this window is a prohibited practice.
Agents are mandated to hold a valid certification from the Indian Institute of Banking and Finance (IIBF) — a 100-hour certificate course.
Prohibited "Harsh Practices" include: abusive/threatening language, social media harassment, contacting relatives/coworkers of the borrower, and impersonation.
Lenders must inform borrowers of recovery agent details in writing (letter/SMS/email) before referring cases.

Connection to this news: The 2026 revised draft builds on the FPC framework, adding technology-specific safeguards (device-locking norms) and mandatory early-engagement mechanisms for borrowers in repayment difficulty.

Non-Banking Financial Companies (NBFCs) and Their Regulation

NBFCs are financial institutions that provide banking-like services (loans, credit) but do not hold a banking licence. Since the 2018 IL&FS crisis, the RBI has progressively tightened NBFC oversight through Scale-Based Regulation (SBR) and enhanced conduct standards.

NBFCs are classified under RBI's Scale-Based Regulation (2021) into four tiers: NBFC-Base Layer, NBFC-Middle Layer, NBFC-Upper Layer, and NBFC-Top Layer.
NBFCs cannot accept demand deposits or issue cheques; they depend on market borrowings and debentures.
The RBI brought Housing Finance Companies (HFCs) under its direct oversight in 2019 (transferred from NHB).

Connection to this news: The revised recovery directions apply uniformly to NBFCs and HFCs alongside commercial banks, signalling the RBI's intent to harmonise conduct standards across the entire regulated lending ecosystem.

Digital Lending and Technology-Based Recovery Mechanisms

The RBI's Digital Lending Guidelines (2022) established guardrails for app-based lending, including data privacy, grievance redressal, and the prohibition of unauthorised access to borrower devices. The 2026 draft directions address a gap that had emerged with fintech lenders deploying device-lock features on financed handsets to enforce repayment.

RBI's Digital Lending Framework (2022) requires lenders to disclose Annual Percentage Rate (APR) and have a board-approved grievance redressal mechanism.
The Lending Service Provider (LSP) model places accountability on the Regulated Entity (RE), not the LSP/app.
Device-locking of financed smartphones is a practice common in emerging markets; RBI's revised directions set conditions under which this can be deployed.

Connection to this news: The revised draft's incorporation of device-functionality restrictions directly responds to a modern recovery challenge in digital/fintech lending, marking the first time the RBI has addressed this specifically in its recovery conduct framework.

Key Facts & Data

Feedback deadline for revised draft directions: May 31, 2026
Earlier draft release date: February 12, 2026
Nine categories of regulated entities covered by the directions
Recovery agents must hold IIBF certification (100-hour course)
Permissible contact hours: 8:00 AM to 7:00 PM only
RBI regulatory authority: Section 35A, Banking Regulation Act, 1949; Section 45-JA, RBI Act, 1934
RBI's Scale-Based NBFC Regulation introduced: 2021
Digital Lending Guidelines issued by RBI: 2022