RBI Draft Rules: Loan Recovery Agents Can No Longer Engage in Misconduct; Strict Rules Framed Against Threatening Customers..

The Reserve Bank of India (RBI) has brought welcome relief to customers who have taken loans from banks and NBFCs. In recent times, there have been numerous reports of customers being subjected to verbal abuse, mental harassment, and even physical assault—all in the name of loan recovery. To curb this arbitrary behavior by recovery agents and bank employees, the RBI has released a new draft of strict regulations. Let's take a look at what these new rules entail.

**Agents Cannot Employ Coercive Methods**

Strict regulations have been formulated for agents involved in loan recovery. The RBI has explicitly stated that intimidating—either physically or mentally—not just the borrower, but also their guarantors, relatives, or friends; making threatening calls from anonymous numbers; humiliating individuals; or uploading recordings of them on social media will be classified as "Harsh Methods" (Coercive/Harsh Practices). Furthermore, such actions have been declared illegal.

**Police Verification of Agents is Mandatory**

Banks often depute local individuals—sometimes without proper vetting—to act as loan recovery agents. There have been frequent instances where these agents have issued continuous threats to customers and, in some cases, even resorted to physical violence. Now, according to the Reserve Bank of India's new draft regulations, police verification has become mandatory for all recovery agents. Individuals with a criminal background or criminal tendencies will be barred from participating in this process.

**ID Cards and Agent Training Are Essential**

It will be mandatory for all loan recovery agents to possess a valid certification from the IIBF (Indian Institute of Banking and Finance). Additionally, whenever an agent visits a customer's residence, they are required to display their agency-issued ID card. If an agent engages a customer in a conversation regarding loan recovery, they must present their agency ID card, an official authorization letter from the bank, and a copy of the recovery notice. Furthermore, it is now mandatory to provide the customer with prior intimation at least one day before visiting their home.

**No Recovery Attempts During Times of Joy or Sorrow**

It has often been observed that loan recovery agents visit customers' homes to demand repayment even during sensitive times—such as weddings or periods of mourning—thereby causing significant mental distress to the customers. According to the RBI's new draft guidelines, recovery agents or banks will be prohibited from contacting customers during periods of mourning or during auspicious family occasions. Furthermore, specific time slots have been prescribed for making phone calls related to loan recovery. Banks and agents may now only contact customers between 8:00 AM and 7:00 PM.

**When Will These Rules Come into Effect?**

These regulations, issued by the RBI, are expected to provide significant relief to customers; they are being formulated specifically to curb threats and prevent mental harassment. However, the pertinent question remains: when exactly will these rules be implemented? It is reported that this draft framework, released by the RBI, is likely to come into force on October 1, 2026.

**Banks to be Held Accountable for Every Action**

The RBI has also stipulated that banks cannot absolve themselves of responsibility—by claiming it was a "third-party error"—in instances where loan recovery agents engage in misconduct. The RBI has clarified that banks will be held directly liable (under the principle of Vicarious Liability) for every action undertaken by their agents. Additionally, banks will be required to publicly disclose the names of all their registered recovery agencies on their respective websites and mobile applications.

Disclaimer: This content has been sourced and edited from Dainik Jagran. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.