Reserve Bank of India issues comprehensive rural cooperative bank loan recovery rules effective January 1, 2027

The Reserve Bank of India issued comprehensive requirements governing rural cooperative banks’ recovery of defaulted loans, possession of security and use of external recovery agencies. Banks must establish recovery policies covering escalation, borrower financial distress, employee and agent conduct, compensation for noncompliant actions and oversight of recovery agencies. They must also conduct due diligence, verify agents’ backgrounds, publish and maintain agency lists, notify affected borrowers of agency appointments or changes, record recovery calls and provide dedicated grievance redressal mechanisms. The rules prohibit harassment and other harsh recovery practices, restrict routine borrower contact to between 8 a.m. and 7 p.m. and require recovery agents to be trained and certified. Technology that restricts a financed mobile device may be used only where expressly permitted by the loan contract. Restrictions cannot begin before the loan is 30 days past due, with the full set permitted only after 60 days past due. Essential functions and work-related access must remain available, restrictions must be reversed within one hour after payment, and bank-attributable wrongful restrictions or delays attract compensation of INR 250 per hour, capped at the amount disbursed. Banks and service providers may not access personal data stored on the device. The requirements take effect on January 1, 2027. Recovery agents already engaged but lacking the required Indian Institute of Banking and Finance certificate must obtain it within one year of that date.