"RBI issues comprehensive framework regulating loan recovery practices and borrower rights"
Loan-to-Value (LTV) Ratio
maximum loan amount as a percentage of collateral's current market value, RBI's primary macro-prudential tool for secured lending.
Recovery Agency
any outsourced individual or entity engaged in recovering loan dues, now including Business Correspondents under RBI's expanded definition.
India's retail lending market has undergone a structural transformation over the past decade. The proliferation of digital lending platforms, unsecured personal credit, Buy Now Pay Later (BNPL) products, and device-financing schemes has brought millions of first-time borrowers into the formal credit system. The Reserve Bank of India (RBI), as the apex banking regulator under the RBI Act, 1934, has historically regulated recovery practices through circulars and guidelines, but the rapid expansion of outsourced recovery operations — often involving third-party agencies operating at arm's length from the lending bank — created persistent regulatory gaps. Complaints of harassment, intimidation, and privacy violations by recovery agents have been a recurring feature of the banking ombudsman's caseload, signalling that existing norms were inadequate for the scale and complexity of modern retail credit.
The regulatory architecture governing loan recovery previously lacked a unified, board-level accountability framework. Recovery was treated largely as an operational function, with banks delegating it to outsourced agencies under varied contractual arrangements. This fragmentation allowed some lenders to disclaim responsibility for agent misconduct, even as borrowers bore the consequences. The RBI's latest directions represent a shift from piecemeal circulars to a comprehensive recovery policy framework, making recovery a board-governed function with explicit accountability chains.
The RBI's new directions introduce several structurally significant changes. First, they formally recognise technology-based loan recovery mechanisms — specifically, the ability of banks financing smartphones, tablets, or laptops to remotely restrict device functions when a borrower defaults. This is not a blanket power: restrictions can only apply to the specific device financed by the loan, must be disclosed upfront in the loan agreement, and cannot be activated until the account is 30 days past due despite notices. Complete restrictions are permissible only after 60 days of non-payment, and outgoing calls cannot be blocked before that threshold. Critically, incoming calls, SMS services, and emergency SOS functions cannot be disabled under any circumstances. Once overdue amounts are cleared, functionality must be restored within one hour, failing which the bank owes compensation of Rs 250 per hour (subject to a ceiling equal to the loan amount).
Second, the directions expand the definition of recovery agencies to include any outsourced individual or entity engaged in recovering loan dues — including Business Correspondents performing recovery functions. …
The establishment of 'Payment Banks' is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context?
1.Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks.
2.Payment Banks can issue both credit cards and debit cards.
3.Payment Banks cannot undertake lending activities.
Select the correct answer using the code given below.
In India, as the 'Lender of Last Resort', the function of the central bank in its usual course normally includes which of the following?
1.Lending to trade and industry bodies when they fail to obtain credit from other sources
2.Providing liquidity to the banks having a temporary crisis
3.Lending to governments to finance budgetary deficits
Select the correct answer using the code given below.
With reference to the RBI's new loan recovery directions, consider the following statements:
1.Banks may disable emergency SOS functions on a financed device after 60 days of non-payment.
2.Complete device restrictions can only be imposed after the loan remains unpaid for 60 days.
3.Banks must restore device functionality within one hour of repayment of overdue amounts.
Which of the statements given above is/are correct?
Consider the following pairs regarding RBI's new loan recovery directions:
1.Minimum days past due before any device restriction — 30 days
2.Minimum days past due before outgoing calls can be blocked — 60 days
3.Minimum hours for call record retention — 6 months
4.Permissible contact hours for recovery agents — 8 am to 8 pm
How many of the above pairs are correctly matched?
Assertion (A): The RBI's new loan recovery directions make recovery a board-governed function rather than merely an operational one.
Reason (R): This is because banks were previously prohibited from outsourcing any recovery-related activities to third-party agencies.
Which of the following is correct?
Which of the following practices has the RBI explicitly listed as unacceptable under its new loan recovery directions?
1.Contacting borrowers before 8 am or after 7 pm without their consent
2.Discussing outstanding loans with the borrower's neighbours or colleagues
3.Posting borrower information or recordings on social media
4.Visiting borrowers during bereavement or medical emergencies
Select the correct answer using the code given below.
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