RBI’s Draft 2026 Amendments on Responsible Recovery by Rural Co-operative Banks

The Reserve Bank of India has proposed a new, detailed framework to regulate how Rural Co-operative Banks (RCBs) recover loans and engage recovery agents. Issued on February 12, 2026 as the Draft Reserve Bank of India (Rural Co-operative Banks – Responsible Business Conduct) Second Amendment Directions, 2026, these directions significantly overhaul the existing norms under the Reserve Bank of India (Rural Co-operative Banks – Responsible Business Conduct) Directions, 2025.

The new regime focuses on:

  • Standardising how RCBs appoint, train, and supervise recovery agents
  • Ensuring fair treatment of borrowers during the recovery process
  • Mandating transparent disclosure and controlled use of borrower information
  • Prohibiting coercive or abusive collection practices
  • Requiring strong grievance redressal and regulatory compliance mechanisms

These Amendment Directions will apply from July 1, 2026 and are being issued under the powers conferred by Sections 21, 35A and 56 of the Banking Regulation Act, 1949.

Scope and Purpose of the Amendment

The Reserve Bank has reviewed the earlier instructions issued under the 2025 Directions and decided to issue a comprehensive and standalone framework governing:

  • Conduct-related aspects of loan recovery; and
  • Engagement and functioning of recovery agents by RCBs.

To operationalise this, paragraphs 369 to 378 in Chapter VIII on Responsible Lending Conduct of the 2025 Directions are deleted, and a new section “J. Conduct of RCBs in Recovery of Loans and Engagement of Recovery Agents” is inserted.

The intent is to balance legitimate recovery of dues with protection of borrower rights, ensure ethical conduct by RCBs and their agents, and reduce reputational and legal risks for the co-operative banking sector.

J.1 Mandatory Recovery Policy Framework

Board-Approved Recovery Policy

Every RCB must frame a comprehensive, written policy covering loan recovery and use of recovery agents. At a minimum, this policy must cover:

  • Eligibility and fit-and-proper criteria for engaging recovery agents
  • Detailed due diligence procedures before empanelment and on an ongoing basis
  • Specific activities that recovery agents are permitted to undertake
  • A clear Code of Conduct to be followed by agents and RCB staff involved in recovery
  • Performance evaluation norms and monitoring mechanisms
  • Inspection and audit processes for oversight of agents
  • Internal controls to ensure adherence to all statutory and regulatory requirements
  • Defined procedures and penal consequences if recovery agents violate norms

The policy must also specifically provide for recovery in cases where the borrower or guarantor has died, ensuring sensitivity and lawful conduct in such situations.

Explanation: The term Recovery Agents in these Directions refers contextually to individuals and/or entities appointed by an RCB for recovering loan dues from borrowers or guarantors, as well as the representatives or staff of such agencies.

J.2 Engagement of Recovery Agents and RCB Employees

J.2.1 Due Diligence Requirements

RCBs that choose to use recovery agents must institute a robust due diligence process consistent with the Reserve Bank of India (Rural Co-operative Banks – Managing Risks in Outsourcing) Directions, 2025, as amended.

This includes:

  • Pre-engagement verification of the background and antecedents of the agency
  • Mandatory verification of the antecedents of each representative/employee of the agency
  • Ongoing periodic background checks at a frequency defined in the RCB’s internal policy

The objective is to ensure that only credible and trustworthy agencies and individuals are involved in dealing with borrowers.

J.2.2 Compulsory Training and Certification

All recovery agents engaged by an RCB must hold a valid certificate from Indian Institute of Banking and Finance (IIBF) after completing its Debt Recovery Agents training programme, or from another institution that has a formal tie-up with IIBF to deliver such training.

For agents already working with an RCB as on the date of issue of these Directions, a transition period of one year is given to obtain the IIBF certification. After that, uncertified agents cannot be retained.

J.2.3 Code of Conduct and Undertakings

Each RCB must: