In a big relief for loan borrowers facing harassment by recovery agents, the Reserve Bank of India is set to tighten the rules governing how banks and financial institutions recover loans. With complaints of threats, intimidation and coercive recovery tactics rising across the country, the central bank has decided to step in to strengthen consumer protection.
Announcing the move, Reserve Bank of India Governor Sanjay Malhotra said the RBI will soon issue a draft guideline on the engagement of recovery agents, aimed at curbing misuse and ensuring fair treatment of borrowers.
“For customer protection, we will issue three draft guidelines—one relating to mis-selling, two regarding recovery of loans and engagement of recovery agents, and three on limiting liability of customers in un-authorised electronic banking transactions,” the Governor said.
Why RBI is stepping in now
Over the past few months, borrowers have increasingly reported aggressive recovery practices—ranging from repeated calls to threats and public shaming—by agents hired by banks and NBFCs.
These incidents have raised concerns that existing rules are either being ignored or poorly enforced. The upcoming draft guideline is expected to plug gaps in supervision and accountability, making banks directly answerable for how recovery agents behave.
Along with tightening norms on loan recovery agents, the RBI will also roll out two other draft guidelines focused on customer protection.
One will deal with mis-selling of financial products, an area where customers often complain of being pushed unsuitable loans, insurance or investment products. The second guideline will focus on limiting customer liability in unauthorised electronic banking transactions.
As part of this framework, the RBI plans to introduce a mechanism to compensate customers up to Rs 25,000 for losses suffered in small-value fraudulent transactions, offering much-needed relief to digital banking users, especially those less familiar with online risks.
In its MPC meeting statement post policy announcement, the RBI said, “For customer protection, we will issue three draft guidelines: one, relating to mis-selling; two, regarding recovery of loans and engagement of recovery agents; and three, on limiting liability of customers in un-authorised electronic banking transactions. It is also proposed to introduce a framework to compensate customers up to an amount of Rs 25000 for loss incurred in small-value fraudulent transactions.”
The central bank will also release a discussion paper on improving digital payment safety, including possible additional authentication and delayed credits for vulnerable users such as senior citizens.
What RBI’s current rules already say on recovery agents
Even before the proposed draft, RBI’s policy clearly restricts how recovery agents can operate. In theory, harassment is already banned.
Key borrower protections under existing RBI rules
The rule says that only authorised agents are allowed and recovery agents must carry an authorisation letter and valid identity card issued by the bank. The contact hours are also restricted and calls or visits are permitted only between 8 am and 7 pm. The agents cannot use any sort of harassment tactics or issue any kind of threat to the borrower. Physical force, abusive language, intimidation or coercion is strictly prohibited. Also borrower privacy must be protected, the rule says.
Agents cannot disclose loan details to neighbours, relatives, employers or post them on social media, according to the existing guidelines. Any misconduct by recovery agents is treated as the bank’s failure, the guidelines in place say.
Despite these safeguards, enforcement has remained uneven—prompting RBI’s fresh move.
Why this matters
For millions of borrowers, loan default already brings financial stress. RBI’s move signals that recovery cannot come at the cost of dignity and safety, and banks will be held accountable for every agent acting in their name.