RBI’s 2026 Draft Framework on NBFC Recovery Practices and Recovery Agents

The Reserve Bank of India has released the Draft Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Second Amendment Directions, 2026 on February 12, 2026. These draft Directions substantially rework the regulatory landscape for loan recovery operations of NBFCs and their recovery agents, and will apply from July 1, 2026, once notified in final form.

These proposed Directions are issued under the powers granted to RBI by Sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934. They are intended to strengthen borrower protection, standardise conduct norms, and ensure that NBFCs use fair, transparent and lawful recovery practices.

The amendment also restructures the existing Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Directions, 2025 by removing earlier provisions on recovery conduct and replacing them with a far more detailed and comprehensive regime.

Important: These draft Directions apply to all NBFCs except the following categories:

  • Mortgage Guarantee Companies
  • Core Investment Companies
  • NBFC-Account Aggregators
  • Standalone Primary Dealers
  • Non-Operating Financial Holding Companies
  • NBFCs without any customer interface

1. Legislative Basis and Effective Date

1.1 Statutory Authority

The Reserve Bank has invoked its powers under:

  • Section 45JA – relating to policy and prudential norms for NBFCs
  • Section 45L – power to give directions to NBFCs
  • Section 45M – power to issue directions in public interest

The RBI has recorded its satisfaction that issuing these Directions is necessary and expedient in the public interest, particularly in view of rising concerns around harsh or coercive recovery practices.

1.2 Short Title and Commencement

  1. These Directions will be known as the Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Second Amendment Directions, 2026.
  2. The operative date specified is July 1, 2026, from which NBFCs must fully align their policies, contracts, and operational practices.

2. Amendments to the 2025 Responsible Business Conduct Directions

The 2026 Amendment Directions reconfigure portions of the existing Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Directions, 2025 as follows:

  1. In Chapter II – Institutional Framework, sub-paragraphs 7(7) and 7(8) are removed.
  2. In Chapter III – Responsible Lending Conduct, paragraphs 89 to 97 are deleted.
  3. In the same Chapter III, Section H – Responsibilities of Recovery Agents of the NBFC and paragraphs 98 to 100 are also deleted.

In place of these earlier provisions, a new dedicated section is introduced, titled:

“I. Conduct of NBFCs in Recovery of Loans and Engagement of Recovery Agents”

This new section lays down a comprehensive framework touching every aspect of loan recovery: internal policies, engagement and training of agents, code of conduct, disclosure obligations, call/contact protocols, possession and enforcement procedures, grievance redressal, and alignment with other regulatory requirements.

3. Mandatory Loan Recovery Policy for NBFCs

3.1 Framing a Dedicated Recovery Policy – Paragraph 100A

Each NBFC is required to adopt a formal, board-approved policy dealing specifically with:

  • Recovery of loan dues
  • Engagement and management of recovery agents
  • Procedures for taking possession of security

The policy must at least address:

  • Eligibility and due diligence standards for engaging recovery agents
  • The types of activities that may be assigned to recovery agents
  • A detailed Code of Conduct binding on recovery agents and NBFC employees involved in recoveries
  • Performance evaluation criteria for agents
  • Inspection, audit and control mechanisms to monitor compliance with law and RBI Directions
  • Clear penalty and corrective measures for non-compliant recovery agents
  • Special protocols for recovery in cases of death of borrower(s) or guarantor(s)

Explanation: For purposes of these Directions, the term ‘Recovery Agents’ covers both:

  • Individual agents and agency entities engaged by the NBFC to recover dues from borrowers/guarantors, and
  • The representatives or employees of such agencies.

4. Engagement and Oversight of Recovery Agents and NBFC Staff

4.1 Due Diligence Requirements – Paragraph 100B

NBFCs that employ recovery agents must implement a robust due diligence process consistent with the Reserve Bank of India (Non-Banking Financial Companies – Managing Risks in Outsourcing) Directions, 2025, as amended periodically.

Key expectations:

  • NBFCs must scrutinize recovery agencies before empanelment.
  • The agencies must, in turn, verify the antecedents of their representatives/employees:
    • At the pre-engagement stage, and
    • Subsequently at pre-defined intervals on a continuing basis.

This layered background check regime seeks to prevent unscrupulous individuals from participating in recovery operations.

4.2 Compulsory IIBF Certification – Paragraph 100C

RBI mandates a minimum competency standard for recovery agents: