Mumbai: Banks cannot disable mobile phones and laptops of defaulting borrowers to recover personal, car, or home loans, except in cases where the devices have been financed by lenders, the Reserve Bank said on Thursday.
Banks should adopt a gradual approach rather than ab initio in specific cases where they are allowed to disable devices as part of the loan recovery process, the Reserve Bank of India (RBI) said.
The central bank’s norms on conduct-related matters in the recovery of loan dues and engagement of recovery agencies come against the backdrop of borrowers’ complaints about being harassed, including through social media platforms and the use of abusive language.
The regulations will be effective from January 1, 2027, according to an RBI circular.
“A bank shall not deploy any technology-based mechanism… which restricts or disables any of the functionalities of a mobile device of a borrower such as mobile phone, tablet and laptop as a recovery tool, except to recover its loan dues arising out from financing of such a device,” it said.
The RBI further said a bank may resort to restrictions or disablement of the functionalities of a mobile device if the acquisition of the mobile device concerned is financed by the bank through a loan.
In such cases, “the bank shall adopt a gradual approach rather than disabling the device, ab initio”.
Also, the lender cannot restrict/disable functionalities deemed essential, such as access to incoming calls, SMS, and emergency SOS features.
Earlier in May, the central bank had floated a draft on norms regarding ‘Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents’.
The RBI received several feedbacks on the draft.
The RBI said suggestions were received to ensure that only secure, compliant, and tested device-locking technologies are deployed by regulated entities (REs), while preventing the proliferation of unlicensed or unreliable software solutions.
Accepting the feedback, the RBI said the RE and the third-party service provider deploying the technology-based recovery mechanism will be required to obtain certification thereof from the original equipment manufacturer of the device or the operating system platform.
The amendment directions on ‘Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents’ also details norms banks have to follow for engagement of recovery agencies for recovery of loan dues.
The RBI also specifically directed banks that they should ensure that the disclosure of any borrower’s/guarantor’s information to its employees/recovery agencies is limited to the extent required to enable them to discharge their loan recovery related duties.
