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The RBI has taken a significant decision regarding loan repayment defaults. The central bank has stated that if a customer defaults on the repayment of a home loan, car loan, or personal loan, banks cannot disable the customer's mobile phone or laptop to recover the loan. Banks may only disable a laptop or mobile phone if the loan was specifically granted to purchase that device.

**What the new RBI circular says**

The RBI has stated that in specific cases where banks are permitted to disable devices for loan recovery, they should adopt a phased approach rather than disabling them immediately. This follows numerous complaints from customers regarding the conduct of recovery agencies and the methods used to recover outstanding loans, including the use of social media platforms and abusive language.

**New recovery rules to take effect from January 1**

According to the central bank's circular, these rules will come into effect on January 1, 2027. The circular states, "No bank shall use technology-based mechanisms as recovery tools that cause devices such as the borrower's mobile phone, tablet, or laptop to cease functioning. Such measures for loan recovery may only be employed if the device was purchased using the loan funds provided by the bank."

**Banks cannot disable laptops or mobile phones immediately**

The RBI has further clarified that even in cases where the device (laptop, mobile phone, or tablet) was purchased using a bank loan, banks should adopt a gradual approach to disabling the device rather than doing so immediately. Additionally, banks cannot disable functionalities essential for incoming calls, SMS services, and emergency SOS features. The RBI has accepted several pieces of feedback regarding the draft on loan recovery.

Earlier in May this year, the RBI released a draft of regulations concerning the conduct of regulated entities regarding loan recovery and the use of recovery agents. The central bank received significant feedback on this draft. After incorporating several of these suggestions, the RBI has stated that regulated entities (REs) and third-party service providers utilizing technology-based recovery mechanisms must obtain certification from the device manufacturer or the operating system platform.

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