Reserve Bank of India has proposed a new draft framework aimed at tightening recovery practices for banks and non-banking financial companies (NBFCs), including rules related to mobile device financing and borrower protection.
Under the proposed norms, lenders may be allowed to restrict certain non-essential mobile phone functions if borrowers default on loans taken specifically to purchase those devices. The draft rules are expected to come into effect from October 1, 2026.
Restrictions Applicable Only to Device Financing Loans
According to the draft framework, restrictions can only be imposed when the loan has been sanctioned exclusively for purchasing the mobile handset.
The loan agreement must clearly disclose:
- The possibility of device restrictions in case of default
- Recovery timelines and procedures
- Borrower grievance redress mechanisms
- Terms for restoring device access after repayment
The RBI has proposed a phased recovery mechanism instead of immediate restrictions.
Step-by-Step Recovery Timeline Proposed
Before any restriction can be applied, lenders would need to follow a structured process:
- A notice must be issued once the account becomes 60 days overdue
- Borrowers must receive at least 21 days to clear outstanding dues
- A second notice with an additional 7-day repayment window is mandatory
- Restrictions can only be activated after the account becomes 90 days past due
This approach aims to provide borrowers with sufficient time and transparency before any action is taken.
Essential Phone Services Must Continue
The proposed rules prohibit lenders from completely disabling mobile devices.
Even after restrictions are imposed, the following services must remain functional:
- Incoming calls
- Internet access
- Emergency SOS features
- Government alerts and public safety notifications
The RBI has also instructed lenders to apply restrictions gradually rather than fully blocking device functionality immediately.
Compensation for Wrongful Restrictions
The draft norms include borrower protection provisions related to restoration timelines.
Once dues are cleared:
- Restricted services must be restored within 1 hour
- If restoration is delayed or restrictions are wrongly imposed, lenders would be required to pay compensation of ₹250 per hour until the issue is resolved
Stronger Rules for Recovery Agents
Apart from device-related restrictions, the RBI has also proposed stricter behavioural standards for recovery agents.
The draft rules prohibit:
- Abusive or threatening language
- Intimidation or coercion
- Public humiliation
- Social media harassment
- Excessive or irregular calling practices
The central bank has additionally clarified that lenders cannot access, collect, or store any personal data from borrowers’ devices under any circumstances.
Any software used for restriction purposes must also be removed permanently once the loan is fully repaid.
Summary
Reserve Bank of India has proposed a new recovery framework allowing lenders to restrict selected mobile phone functions for borrowers who default on device financing loans. The draft rules introduce a phased recovery process, mandatory borrower notices, protection of essential phone services, compensation for wrongful restrictions, and stricter conduct standards for recovery agents. The proposed regulations are expected to take effect from October 1, 2026.
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