RBI Proposal May Let Banks Block Smartphone Services of Loan Defaulters
A broader overhaul of loan recovery standards is underway. Reserve Bank of India (RBI) has issued modification orders to update 'Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents.'. As part of the planned changes, financial institutions like banks and NBFCs will be able to use tech-based mechanisms to collect overdue loans from borrowers by limiting or disabling the functionality of a financed mobile device. Some fintech lenders and smartphone finance companies are already using this approach, and the plan aims to formally regulate it.
What New Proposal States?
It has been made clear by the RBI that such limitations can only be applied in cases where the loan was utilised to explicitly fund the acquisition of that particular smartphone. Loan agreements should make it clear when this is permissible, how limits will be applied in stages, when defaults will be remedied, and how borrowers can resolve any complaints they may have. After the borrower has been sent repeated notices and the account has been 90 days past due, the lender can begin limitations, according to the draft regulations.
Once a debt is 60 days past due, the bank is required to send a notice to the borrower, providing them with at least 21 days to resolve the default. Prior to the imposition of any limitation, a second notification giving an additional seven days would also be required. Crucially, the central bank has made it illegal for lenders to entirely disable essential phone features.
Internet connectivity, incoming calls, emergency SOS functions, and receiving public safety or government alerts are essential services that cannot be deactivated. Lenders are to take a "graduated approach" rather than instantly disabling devices, as instructed by the RBI.
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Some Interesting Facts of the Story |
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1.Essential services like emergency SOS, incoming
calls, and government alerts cannot be blocked under the RBI proposal 2.Smartphone financing defaults are rising alongside
India’s booming buy-now-pay-later and fintech lending ecosystem 3.India’s digital lending market expansion has
increased regulatory focus on ethical recovery practices |
RBI Overhauling Loan Recovery Ecosystem
Notably, "recovery agencies" and "recovery agents" have been first legally defined inside the regulatory framework of the RBI. Business correspondents involved in recovery operations would likewise be governed by similar regulations. The proposed regulations provide that in order to be deployed, recovery agents must first obtain certification from the Indian Institute of Banking and Finance or one of its affiliated institutes. Also, across all channels (website, mobile app, and branch), banks would have to reveal which recovery agencies they have empanelled.
A recovery agency's particulars, like operational regions and duration of participation, must be part of the disclosure. Additionally, if a borrower's complaint regarding loan dues or recovery methods is not resolved, lenders are not permitted to assign recovery cases. Recovery staff are also subject to stricter behaviour requirements in the proposed regulations.
Bylaws prohibit recovery agents from contacting debtors between the hours of 8 AM and 7 PM, as well as from using threats, harsh language, or social media to publicly shame or intimidate debtors or their family members. Further, for a minimum of six months, financial institutions must keep detailed records of all calls pertaining to recovery, including recording details, frequency, and timestamps.
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Quick Shots |
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•RBI proposes allowing lenders to restrict financed
smartphone functions after loan defaults •Draft rules are part of RBI’s broader overhaul of
loan recovery practices •Restrictions apply only if the loan was
specifically used to purchase that smartphone •Loan agreements must clearly mention conditions,
stages, and borrower grievance mechanisms |
