The Reserve Bank of India (RBI) has issued a draft circular amending the directions on the conduct of banks in the recovery of loans and the engagement of recovery agents.
The amendments provide for enabling banks to deploy technology-based mechanisms that restrict or disable certain functionalities of a mobile device purchased through a loan.
Restrictions or the disablement can be deployed to recover loan dues from a borrower in the event of a loan default.
Under the new rules, banks can take possession of the device if the borrower has defaulted on repayment and the loan agreement contains a possession clause.
The bank must ensure that the possession clause is legally valid and is clearly brought to the borrower’s notice at the time of executing the loan agreement.
The loan agreement must contain provisions regarding the notice period before taking possession, circumstances under which the notice period can be waived, procedure for taking possession of the device, final chance to be given to the borrower for loan repayment before the device sale/auction, procedure for giving the device possession back to the borrower, and procedure for device sale/auction.
The bank can deploy a technology-based mechanism that restricts or disables any functionalities of a borrower’s electronic device only when the borrower has purchased the device through a loan and the bank wants to recover the loan.
The bank may restrict or disable the device functionalities only when the following conditions are satisfied: the bank has financed the device purchase through a loan, the loan agreement expressly and unambiguously permits such an action and the sequence of events that will follow, and the borrower has been provided at least 90 days to cure the loan default.
While deploying any technology-based mechanism, the bank shall adhere to a graduated approach and shall not restrict or disable essential functionalities, such as access to the internet, incoming calls, emergency SOS features, and receipt of emergency Government or public-safety notifications.
On loan repayment, the bank must expeditiously reverse the restrictions on the device functionality within one hour. In the event of wrongful restriction or delay in reversing the restriction on the device functionality after loan repayment, the bank must compensate the borrower.
The RBI directions will come into effect from 1st October 2026.
