The Reserve Bank of India (RBI) is tightening the rules on the way banks conduct the loan recovery process from borrowers and use recovery agents.

The draft guidelines, issued Thursday, are aimed at fair treatment to borrowers, transparency and prevention of harassment during loan recovery.

Banks have to put in place a code of conduct for the recovery agents and its own employees engaged in activities related to recovery of loans. 

Adoption of harsh recovery practices is to be avoided, including abusive language, sending inappropriate messages either on mobile or through social media and excessively calling.

The draft norms also bar threatening or anonymous calls;  acts of intimidation or harassment; use or threat of violence; and making false or misleading representations, especially about extent of the debt or consequences of non-repayment.

The bank has to ensure that the borrower’s privacy is respected; the contacting hours are limited between 7 am and 7 pm; the place of contact should be according to the borrower’s choice; and inappropriate circumstances like bereavement in the family are to be avoided. 

As per the proposed guidelines, a bank must ensure that all phone calls made to a borrower by an agent are recorded. An agent should interact with a borrower in a "civil manner".

Banks must ensure that customer information resting with the agents or employees is not misused.

"An employee/recovery agent shall interact with the borrower in a civil manner. Further, he / she shall maintain decency and decorum during visits to the borrower's place for collection / recovery of loan dues," the RBI said.

The RBI is also considering to make it compulsory for the recovery agents to undergo the 'debt recovery training' conducted by the Indian Institute of Banking and Finance (IIBF).

The RBI in the past had asked lenders to be more sensitive, particularly after the death of the next of kin of a borrower during a visit by a loan recovery agent in Bihar. In September 2022, the RBI had barred Mahindra & Mahindra Financial Services from conducting loan recoveries through external agencies following the death of an individual. The ban was lifted four months later. 

The RBI has asked the stakeholders and public to submit their feedback on the draft guidelines by 6 March, based on which the rules are to come into effect from 1 July 2026.

The RBI has also issued drafts for small finance banks, non-banking financial companies, urban co-operative banks and regional rural banks.