RBI Proposes Stricter Norms for Loan Recovery and Recovery Agents

Press Release no. 2025-2026/2099; Dated: 12.02.2026

The Reserve Bank of India (RBI) has issued draft amendment directions on the Conduct of Regulated Entities (REs) in Recovery of Loans and Engagement of Recovery Agents.

The draft seeks to strengthen governance, transparency, and customer protection in loan recovery practices adopted by banks.

1. Mandatory Board-Approved Policy on Recovery and Engagement of Recovery Agents

Under the draft directions, banks must put in place a comprehensive policy covering:

• Recovery of loans
• Engagement of recovery agents
• Taking possession of security

The policy must be structured, documented, and aligned with RBI’s regulatory expectations.

2. Coverage of Policy Framework

The policy is required to address the following key aspects:

2.1 Eligibility and Due Diligence of Recovery Agents

• Criteria for selection and engagement
• Due diligence requirements prior to empanelment
• Verification of antecedents of recovery agents and their employees
• Ongoing verification at defined periodic intervals

2.2 Scope of Activities and Code of Conduct

• Clearly defined permitted activities of recovery agents
• A formal Code of Conduct for recovery agents and their employees
• Behavioural and ethical standards to prevent harassment or misconduct

2.3 Performance Monitoring and Control Mechanisms

• Performance evaluation standards for recovery agents
• Inspection and audit mechanisms
• Internal control systems to ensure compliance with statutory and regulatory requirements

2.4 Non-Compliance and Penal Measures

• Procedures to be followed in case of violations
• Penal actions against non-compliant recovery agents
• Suspension or termination protocols

3. Recovery in Case of Death of Borrower or Guarantor

The draft directions specifically address procedures for:

• Recovery of dues upon the death of borrowers or guarantors
• Appropriate and sensitive handling of such cases
• Compliance with legal and regulatory provisions

This aims to ensure fair and respectful treatment of legal heirs and stakeholders.

4. Due Diligence and Verification Requirements

Banks engaging recovery agents must:

• Establish a robust due diligence process in line with RBI instructions
• Ensure recovery agencies verify antecedents of:

1. 1. Their representatives
   2. Employees involved in recovery

Verification must be conducted:

• At the pre-engagement stage, and
• On an ongoing periodic basis

5. Borrower Engagement and Early Identification of Stress

Banks are also required to:

• Establish mechanisms to identify borrowers facing repayment difficulties
• Engage proactively with such borrowers
• Provide guidance on available resolution or recourse options

This reflects a shift toward customer-centric and resolution-oriented recovery practices.

6. Regulatory Objective

The draft directions aim to:

• Ensure ethical and compliant recovery practices
• Strengthen oversight over recovery agents
• Prevent coercive or unfair recovery methods
• Promote early borrower engagement and resolution
• Enhance consumer protection and trust in the banking system

7. Key Takeaway

The proposed framework will require banks to adopt a structured, policy-driven approach to loan recovery and engagement of recovery agents, with strong due diligence, monitoring, borrower protection measures, and clearly defined conduct standards.

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