RBI Tightens Norms on Recovery Agents’ Conduct

Guideline Title: Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Second Amendment Directions, 2026
Effective Date: 1 July 2026
Scope: All scheduled commercial banks, regional rural banks, and other regulated entities.
Prohibited Practices:
Use of abusive language or threats.
Excessive or anonymous calls.
Contacting borrowers outside prescribed hours.
Public humiliation of borrowers/guarantors.
False or misleading representations about debt.
Definition of Harsh Methods: Any intimidation or harassment – verbal, physical, or reputational – towards borrowers, guarantors, or their relatives/friends/co‑workers.
Institutional Responsibility: Banks must frame a formal recovery policy covering:
Eligibility criteria and due‑diligence norms for recovery agents.
A code of conduct and specified permissible activities.
Performance evaluation standards.
Grievance Redressal: Mandatory dedicated mechanism for complaints related to recovery practices.

Recovery agents have traditionally been a source of borrower distress, leading to consumer‑rights concerns and reputational risks for banks.
Earlier RBI circulars (2020, 2022) hinted at responsible business conduct, but lacked detailed operational guidelines for recovery agents.
Rising NPA levels and heightened consumer activism prompted the RBI to formalise stringent norms.

Consumer Protection: Aligns with the Right to Fair Credit and safeguards borrowers from coercive recovery tactics.
Financial Inclusion: By ensuring humane recovery, vulnerable borrowers are less likely to avoid formal credit channels.
Bank Reputation & Risk Management: Reduces litigation risk and enhances trust in the banking system.
Regulatory Oversight: Strengthens the RBI’s supervisory framework under the Banking Regulation Act, 1949.

Banking Regulation Act, 1949 – empowers RBI to issue directions to banks for orderly conduct.
Consumer Protection Act, 2019 – provides remedies against unfair trade practices, now reinforced for banking recovery.
Right to Equality (Article 14) & Right to Life (Article 21) – indirectly support protection against harassment.

Remember the effective date (1 July 2026) and the key prohibited practices.
Understand the dual focus: borrower protection and institutional accountability.
Relate the guidelines to broader themes of responsible banking, financial inclusion, and consumer rights.