RBI’s Revised Draft Directions on Loan Recovery & Use of Recovery Agents (2026): Detailed Compliance Guide
The Reserve Bank of India has released a fresh set of revised draft Amendment Directions, 2026 dealing with how regulated entities should conduct themselves while recovering loans and when engaging recovery agents. These drafts have been issued after examining extensive feedback received on the earlier proposals released on February 12, 2026, pursuant to the Statement on Developmental and Regulatory Policies dated February 6, 2026.
The new drafts significantly tighten the regulatory expectations around:
- Treatment of borrowers and guarantors during recovery
- Use and oversight of recovery agencies and their agents
- Deployment of technology-based recovery tools, especially those that can restrict mobile device functions
- Privacy, transparency, and grievance redressal obligations
RBI has invited comments on these revised drafts up to 31 May 2026, after which the final directions will be issued.
The framework covers a wide range of regulated entities, including:
- Commercial Banks
- Small Finance Banks
- Local Area Banks
- Regional Rural Banks
- Urban Co-operative Banks
- Rural Co-operative Banks
- All India Financial Institutions
- Non-Banking Financial Companies (NBFCs)
- Housing Finance Companies
1. Background and Coverage of the Revised Draft Directions
RBI has issued separate but broadly harmonised draft Amendment Directions for different categories of entities, such as:
- Reserve Bank of India (Commercial Banks – Responsible Business Conduct) ……. Amendment Directions, 2026
- Reserve Bank of India (Small Finance Banks – Responsible Business Conduct) ……. Amendment Directions, 2026
- Reserve Bank of India (Local Area Banks – Responsible Business Conduct) ……. Amendment Directions, 2026
- Reserve Bank of India (Regional Rural Banks – Responsible Business Conduct) ……. Amendment Directions, 2026
- Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) ….. Amendment Directions, 2026
- Reserve Bank of India (Rural Co-operative Banks – Responsible Business Conduct) …… Amendment Directions, 2026
- Reserve Bank of India (All India Financial Institutions – Responsible Business Conduct) ……. Amendment Directions, 2026
- Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) ……. Amendment Directions, 2026
- Reserve Bank of India (Housing Finance Companies) …… Amendment Directions, 2026
For commercial banks and Small Finance Banks, these drafts modify and supplement the existing Responsible Business Conduct Directions, 2025, and introduce a comprehensive chapter dealing exclusively with recovery conduct and engagement of recovery agencies.
Legal basis and effective date
For the banking entities, the directions are issued under the powers conferred by Sections 21 and 35A of the Banking Regulation Act, 1949. For example, in the case of commercial banks, the document titled:
Draft Reserve Bank of India (Commercial Banks – Responsible Business Conduct) ……. Amendment Directions, 2026
specifically states that these Directions shall be called as such and shall come into force from October 1, 2026. Similar commencement provisions apply to Small Finance Banks and other categories wherever specified.
2. Core Definitions: Recovery Agency and Recovery Agent
Across the different regulated entities, RBI adopts a common definitional framework. The key concepts introduced (by inserting new sub-paragraphs after 4(24) in the respective master directions) are as follows:
“Recovery agency”
An entity or individual (other than the regulated entity’s own staff) engaged under an outsourcing arrangement to support recovery of loan dues from a defaulting borrower, including taking possession of security.- Example: A Business Correspondent (BC) who also undertakes recovery work for a bank will fall within this definition.
“Recovery agent”
A representative of a recovery agency who actually interfaces with the borrower or guarantor and undertakes recovery-related activity on behalf of the regulated entity.- Where an individual is hired directly by the regulated entity (and not through a recovery agency) for recovery or possession operations, such person is simultaneously treated as both recovery agency and recovery agent for the purpose of the Directions.
These definitions clearly bring outsourced recovery operations into the regulatory net and ensure that the same conduct standards apply whether recovery is done by internal staff or external agencies.
3. Applicability and Relationship with Other Laws
New sections such as Section L (for Commercial Banks and SFBs) and Section H (for Local Area Banks) clarify that:
The provisions apply to:
- Recovery of dues from borrowers in default, including actions to take possession of secured assets; and
- In certain explicitly mentioned cases, to regular collection of instalments even before default.
They operate without prejudice to:
- Rights and obligations under other statutes dealing with enforcement of security, and
- Existing instructions on specific recovery actions such as one-time settlements.
For ease of application, the term “bank employees”, “SFB employees”, or “LAB employees” is expanded to include all staff who are deployed on loan recovery or taking possession of security.