Reserve Bank of India (RBI) issues draft directions for loan recovery framework effective July 1, 2026

Key facts

• The Reserve Bank of India (RBI) has issued the draft RBI (Commercial Banks – Responsible Business Conduct) Second Amendment Directions, 2026, to tighten loan recovery rules.
• The new framework is scheduled to come into effect from July 1, 2026, following the Budget 2026 announcement by the Finance Minister Nirmala Sitharaman.
• Regulated entities and stakeholders are required to submit feedback on the draft directions on or before March 6, 2026.
• The draft directions apply to Commercial Banks, Small Finance Banks (SFBs), Non-Banking Financial Companies (NBFCs), Urban Co-operative Banks (UCBs), and Regional Rural Banks (RRBs).
• Banks must implement a mandatory recovery policy, a code of conduct for recovery agents, and a formal grievance redressal mechanism.
• Recovery agents or bank employees are permitted to contact or visit borrowers only between 08:00 hours and 19:00 hours.
• The RBI has mandated that banks must record the content or text of all recovery-related calls and document the time and number of calls made to the borrower or guarantor.
• Recovery agents are strictly prohibited from contacting relatives, friends, or co-workers of the borrower and must interact only with the borrower or the guarantor.
• Banks are required to publish a list of all empanelled recovery agents on their branches, mobile applications, and websites.
• The draft explicitly bans harsh practices including the use of abusive language, sending inappropriate social media messages, making anonymous calls, and physical or verbal intimidation.
• For microfinance loans, recovery must occur at a mutually decided designated place, though field staff may visit residences if the borrower fails to appear on two or more successive occasions.
• Banks are prohibited from initiating legal action as a first resort and must provide a written notice before taking possession of security or initiating legal measures.
• Where a grievance is lodged by a borrower, the bank cannot forward the recovery case to an agent until the grievance is finally disposed of, unless the complaint is found to be frivolous.