Borrower-first approach: RBI proposes sweeping norms to rein in loan recovery practices

The Reserve Bank of India (RBI) on February 12 released draft amendment directions aimed at strengthening norms governing the conduct of regulated entities during loan recovery and the engagement of recovery agents. 

The central bank said that while detailed instructions on the engagement of recovery agents currently apply to Scheduled Commercial Banks (excluding Regional Rural Banks) and Housing Finance Companies, a review has led to the decision to issue comprehensive, harmonised guidelines for all regulated entities. 

The proposed framework seeks to address a broad set of conduct-related issues in the recovery process, including fair treatment of borrowers, behaviour of lenders’ staff and recovery agents, due diligence, training requirements, and a formal code of conduct for agents. 

The move follows the announcement made in the RBI’s Statement on Developmental and Regulatory Policies dated February 6, 2026, signalling the regulator’s intent to tighten oversight of recovery practices amid rising concerns around customer protection and ethical collections. 

To operationalise the changes, the RBI has issued draft amendments to responsible business conduct directions across a wide spectrum of entities, including commercial banks, small finance banks, local area banks, regional rural banks, urban and rural co-operative banks, All India Financial Institutions, Non-Banking Financial Companies (NBFCs), and Housing Finance Companies. 

The central bank has invited comments from regulated entities, stakeholders, and members of the public on the draft directions, with feedback to be submitted by March 6, 2026. 

The proposed overhaul is intended to create a uniform, borrower-centric recovery framework across the financial system while strengthening accountability and professionalism among recovery agents engaged by lenders.