RBI spells out norms to keep loan recovery agents on leash

ECONOMY – BANKING

13 FEBRUARY 2026

RBI Draft Guidelines on Loan Recovery Practices (2026)

• The Reserve Bank of India (RBI) has issued draft guidelines aimed at curbing abusive and coercive loan recovery practices by banks and recovery agents.
• These will be known as the Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Second Amendment Directions, 2026, and are proposed to come into effect from July 1, 2026.

What Is Prohibited?

The RBI proposes banning the use of “harsh methods” during loan recovery. These include:

1.  Verbal & Communication Misconduct

• Using abusive or threatening language
• Sending inappropriate messages via mobile or social media
• Excessive calling
• Calling outside prescribed hours
• Making threatening or anonymous calls

2.  Harassment & Intimidation

• Harassing borrowers, guarantors, or their family members, friends or co-workers
• Public humiliation
• Verbal or physical intimidation

3.  Misrepresentation & Threats

• Threat of violence
• Threatening harm to:
  • Family
  • Assets
  • Reputation
• False or misleading claims about:
  • Extent of debt
  • Legal consequences of non-payment

4.   Institutional Responsibilities

All banks must:

• Create a dedicated grievance redressal mechanism for recovery-related complaints.
• Adopt a formal loan recovery policy, covering:
  • Due diligence for hiring recovery agents
  • Code of conduct
  • Performance evaluation standards
  • Possession of security norms

Why This Move?

• Reports of recovery agents using coercive tactics.
• Announced during the latest monetary policy.
• Part of RBI’s push for responsible lending and ethical banking practices.