Banks Can't Disable Mobile Phones Of Defaulting Borrowers: RBI Proposal

The Reserve Bank of India (RBI) proposed on Wednesday that banks cannot disable or restrict the mobile phones of defaulting borrowers as a recovery method, except for devices financed by the bank itself. Under the new rules, banks may only restrict functionalities of a financed mobile device if the loan is 90 days past due and the borrower has failed to resolve the default despite notices. The RBI emphasized that essential functionalities, such as internet access, incoming calls, emergency SOS features, and government alerts, cannot be blocked. Banks must also reverse restrictions within one hour of the borrower curing the default. If wrongful restrictions occur, the borrower will be compensated at Rs 250 per hour until the issue is resolved. The revised draft directions, part of the 'Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents,' also require banks to document and record calls made to borrowers for recovery. Harassment methods, including abusive language, social media misuse, and excessive calls, are explicitly prohibited. The RBI will implement these norms from October 1, 2026, following feedback from stakeholders on an earlier draft. Separate guidelines have been issued for small finance banks, regional rural banks, cooperative banks, non-banking financial companies, and housing finance companies. The public can submit comments on the revised proposal until May 31.