The Reserve Bank of India (RBI) has unveiled a comprehensive draft framework aimed at curbing aggressive, coercive and unethical practices by banks and third‑party recovery agents when pursuing loan defaulters a move widely welcomed by borrower‑rights advocates and consumer groups.

Under the draft guidelines released on 12 February 2026, lenders will be required to inform borrowers in writing about the identity of recovery agents assigned to their accounts and to ensure that agents behave civilly and transparently throughout the recovery process.

The rules, which are open for public feedback until 6 March 2026, prohibit abusive language, threatening or anonymous calls, harassment of relatives or associates, excessive contact outside prescribed hours and misleading representations about debts or consequences of non‑repayment.

Once finalised, the norms are expected to take effect from 1 July 2026, as part of RBI’s broader push for stronger consumer protection and ethical conduct in financial services.

New Standards for Conduct, Transparency and Accountability

At the heart of RBI’s proposal is a set of strict conduct standards for both banks and external recovery agents. Lenders will have to maintain and publicly display up‑to‑date lists of all engaged recovery agents and ensure prospective agents hold training certificates from the Indian Institute of Banking and Finance (IIBF) or a recognised equivalent.

Communication with borrowers whether by phone, SMS, email or in person must be respectful and limited to 08:00–19:00 hours, with agents required to identify themselves clearly and avoid intruding on borrowers’ privacy or social circles.

The draft also mandates documented recovery interactions, including recording calls and maintaining logs of contact attempts, while stressing that legal action or asset seizure should not be the first step without proper written notice and formal procedures.

Crucially, lenders are prohibited from engaging recovery agents in cases where a formal grievance has been lodged by the borrower until the complaint is resolved, reinforcing the integrity of the dispute‑resolution process.

According to the RBI, recovery strategies must not be tied to targets or incentive structures that might encourage aggressive behaviour, and lenders will need to put in place grievance redressal mechanisms specifically for recovery‑related complaints, with contact details clearly provided to borrowers at the time of loan disbursal.

Persistent Borrower Complaints Spur Reform

The move by the RBI comes amid growing public concern and mounting complaints about the conduct of recovery agents across India. Borrowers and legal experts have long reported frequent harassment, including repeated calls at inappropriate hours, threats of violence, unsolicited visits to homes or workplaces, and contact with relatives or colleagues about an individual’s debt actions that can cause distress, embarrassment and privacy breaches.

These issues have been documented widely in media reports and consumer forums, with many defaulters and even unrelated third parties recounting experiences of abusive or intimidating behaviour by agents demanding repayment. For instance, there are anecdotal accounts of recovery agents using profane language, threatening family members, and contacting third parties without consent actions that violate existing fair‑practice norms but have persisted due to weak enforcement and lack of clear punitive measures.

RBI officials have acknowledged these ground‑level challenges and the need for reform. The new draft guidelines are part of a broader set of proposals that also include measures on fair sales practices and compensation frameworks to protect customers against fraud and mis‑selling of financial products.

This regulatory push follows RBI Governor Sanjay Malhotra’s recent indications that stronger consumer protection frameworks would be a priority for 2026, aligning with global trends emphasising ethical conduct in financial systems.

The proposed framework also reflects shifts in how regulators view borrower dignity and privacy, as financial hardship and indebtedness increasingly intersect with social and mental‑health concerns for millions of Indians. With public feedback now invited, stakeholders including lenders, industry bodies and consumer rights groups are likely to contribute perspectives before the final rules are notified later this year.

The Logical Indian’s Perspective

At The Logical Indian, we applaud the RBI’s draft guidelines for taking a more humane and transparent approach to loan recovery one that recognises the emotional and social toll of financial distress and seeks to protect vulnerable individuals from undue duress. Ethical lending and recovery practices should be a given, not a concession, in a fair and inclusive financial system.

However, the effectiveness of these proposals will ultimately depend on robust implementation, ongoing monitoring and accountability from both regulators and lenders alike. Lenders should be proactive in training staff and simplifying grievance processes, while borrowers must be empowered with clear knowledge of their rights and avenues for redressal.