Failed To Repay EMIs On Time? RBI May Allow Lenders To Lock Your Smartphone To Tackle Rising Defaults

The Reserve Bank of India (RBI) is reportedly considering a move that could allow lenders to remotely lock mobile phones purchased on credit if borrowers fail to repay their equated monthly instalments (EMIs). According to experts, the step is designed to control rising defaults in small-ticket loans, especially those linked to consumer electronics. While the proposed measure may support loan recovery, it also raises serious concerns about consumer rights, digital dependence, and the ethical use of technology in financial enforcement.

RBI’s New Loan Recovery Mechanism

The proposed policy would mark a significant shift in loan recovery practices. Lenders could potentially restrict access to smartphones bought on instalments if borrowers default, preventing usage until dues are cleared. The measure, if approved, is likely to form part of an updated Fair Practices Code that the central bank may announce in the coming months.

Industry insiders believe this step is being explored after consultations with banks and non-banking financial companies (NBFCs), who have faced rising risks in unsecured lending.

Balancing Loan Recovery With Consumer Rights

According to experts, the RBI faces the difficult task of balancing lenders’ interests with consumer protection. While the ability to lock devices may give financial institutions more power to curb defaults, borrowers’ access to essential services such as banking, education, and work could be jeopardised.

The regulator is expected to mandate borrower consent before any phone-locking system is implemented. Importantly, lenders will not be permitted to access personal data stored on the devices, ensuring that user privacy is preserved.

Rising Defaults In Small-Ticket Loans

Small-ticket consumer loans, particularly those under ₹10,000, have shown higher default rates compared to larger loans. Reports indicate that delinquencies peaked among borrowers between December 2023 and June 2024. Much of this lending was driven by NBFCs, particularly in smaller towns and semi-urban centres outside India’s top 100 cities.

Analysts suggest that mobile phones have become one of the most common purchases financed through such loans, making them a prime focus for recovery mechanisms.

Industry Support And Concerns

Lenders argue that the ability to lock devices remotely could improve recovery rates and reduce non-performing assets in consumer credit portfolios. This, in turn, may strengthen financial stability in the small-loan segment.

However, consumer rights advocates have expressed serious concerns. Critics argue that restricting access to smartphones effectively denies individuals the ability to participate in everyday life, from online payments to remote learning and work. They caution that such measures could disproportionately impact economically vulnerable borrowers.

One consumer advocate warned that using essential devices as collateral risks “weaponising access to technology” and enforcing behavioural compliance in ways that could harm livelihoods.

Protecting Data And Digital Access

The RBI is reportedly considering strict safeguards to ensure borrowers’ personal data is not misused. The focus will be limited to locking device functionality rather than accessing stored content. By imposing clear boundaries, the central bank aims to reassure the public that data protection will remain a priority.

Experts highlight that maintaining trust is critical, as widespread consumer backlash could undermine confidence in digital lending models, which have grown rapidly in India over the past few years.

The Road Ahead

The RBI’s proposal has sparked debate across financial and consumer circles. Supporters see it as a necessary innovation in loan recovery, while critics view it as an overreach that risks eroding consumer rights. The final guidelines are expected to reflect a compromise, emphasising borrower consent and strict compliance requirements for lenders.

For borrowers, this development is a reminder to carefully read loan agreements, understand repayment obligations, and be aware of potential consequences of default. For lenders, it highlights the importance of ethical practices in deploying technology for financial enforcement.

Disclaimer: This article is for information only. According to experts, the Reserve Bank of India has not yet issued formal guidelines, and borrowers should wait for official notifications before making decisions. Readers are advised to consult financial advisors or lenders directly for policy details and clarifications.