The Reserve Bank of India (RBI) has proposed a comprehensive set of loan recovery norms designed to clamp down on aggressive practices and enhance customer protection across the banking system. These draft guidelines, detailed under the RBI (Commercial Banks – Responsible Business Conduct) Second Amendment Directions, 2026represent a major shift toward fair treatment of borrowers during loan default and recovery processes.
Why RBI Is Reforming Loan Recovery
Loan recovery by banks and financial institutions in India has long been criticised for coercive tacticsintrusive calls, and harassment of borrowers or their contacts. In its latest draft, the RBI aims to remove these harsh practices by setting clear behavioral standards, conduct codes, and safeguards for borrowers. The move follows announcements in the 2026 Union Budget and recent monetary policy statements.
Stricter Conduct Rules for Recovery Agents
Under the proposed framework, banks must develop a formal, board-approved loan recovery policy that governs not just procedures but also the ethical conduct of recovery agents. Key elements include:
- Mandatory code of conduct for agents and bank employees engaged in recovery.
- Agents must be certified and trainedensuring accountability.
- Banks must document and record all recovery calls.
Limits on Contact and Harassment Bans
One of the most significant changes is the explicit ban on harassment and abusive practices. The draft norms prohibit:
- Harassing or threatening calls
- Use of abusive language
- Contact outside permitted hours (only between 8 am and 7 pm)
- Repeated calls, anonymous messages, or unwelcome social media contact
- Harassment of borrowers’ relatives, colleagues, or associates
Recovery visits or calls during sensitive occasions such as bereavement, festivals, marriages, or natural disasters are also disallowed, prioritising respect for borrowers’ privacy and dignity.
Transparency and Grievance Redressal
Banks will be required to share details of empanelled recovery agents with borrowers and establish dedicated grievance redressal mechanisms. If a borrower files a complaint, recovery actions may be paused until fair resolution, except in cases where complaints are deemed frivolous.
Looking Ahead
The draft norms are open for public and stakeholder feedback until March 6, 2026and are expected to be formally notified by July 1, 2026. If approved, these reforms could significantly improve borrower trust and ethical conduct in banking loan recovery across India.
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