RBI to Strengthen Rules to Curb Abusive Conduct by Loan Recovery Agents; Focus on Consumer Protection

The Reserve Bank of India plans tighter norms for loan recovery agents to stop harassment and abusive conduct, enhancing consumer protection in credit recovery.

Pune | 14 February, 2026- The Reserve Bank of India is preparing to introduce tougher regulations aimed at curbing abusive practices by loan recovery agents operating on behalf of banks and non-bank lenders. The move comes as part of a broader effort to strengthen consumer protection within the credit ecosystem and ensure that enforcement of loan contracts does not cross into harassment or unethical conduct.

Under the proposed framework, financial institutions will be required to ensure strict supervision and control over third-party recovery agents they engage. The new norms are likely to mandate detailed reporting of recovery activities, compliance with a code of conduct, and explicit mechanisms for borrowers to lodge complaints against misconduct. Current practices have drawn criticism for instances in which borrowers — including individuals and small business owners — have faced aggressive tactics, threats, or intimidation by agents attempting to recover loans.

Officials and industry experts say the initiative reflects growing concern that credit enforcement practices must balance lender rights with borrower dignity. Loan repayment defaults can create financial stress for lenders and borrowers alike, but regulators have noted that certain recovery strategies have at times violated basic principles of fairness, leading to reputational risk and consumer distrust.

As part of the proposed regulatory update, lenders may be required to maintain detailed audit trails of recovery outreach, including records of communications, the mode and timing of contact, and verification that conduct remained within defined professional boundaries. Recovery agents may also have to undergo registered training and certification to operate, ensuring they are aware of legal and ethical guidelines — ranging from prohibition of personal threats to restrictions on public disclosure of a borrower’s financial status.

The RBI’s plans align with broader trends in the financial sector emphasizing enhanced regulatory oversight over outsourced functions. In recent years, both banks and non‑banking financial companies have increasingly used third-party agencies to manage portfolios of non-performing assets (NPAs) and delinquent accounts. While such arrangements help lenders focus on core lending operations, gaps in monitoring and enforcement have at times led to unauthorised behaviour by agents, sparking complaints to regulators and consumer forums.

Once implemented, the new norms could require lenders to promptly address complaints against recovery agents and potentially face penalties or supervisory action for repeated violations. Consumer advocacy groups have welcomed the proposal, noting that borrowers — particularly those under financial stress — should not be forced to endure tactics that can exacerbate distress or violate legal protections. Several legal experts also argue that clear, enforceable guidelines will reduce ambiguity and help restore confidence in formal credit mechanisms.

In addition to stronger conduct rules, the regulatory blueprint may include mechanisms to reduce the gap between lenders’ rights and borrowers’ experience during recovery processes. These could include mandatory borrower grievance redressal channels, timelines for resolution of disputes, and transparent disclosures about the role and limits of recovery agents. Such protections may also require lenders to adopt written agreements that explicitly define acceptable methods of engagement and recourse options for borrowers.

The central bank’s strategy reflects a recognition that the financial system must be both efficient and fair, and that robust credit enforcement should not come at the expense of consumer rights. With rising credit penetration and diversified lending channels, regulators are increasingly focused on nurturing an environment where integrity in customer interactions is upheld across the entire lending cycle — from origination to recovery.

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