The Reserve Bank of India (“RBI”) has issued the Draft Responsible Business Conduct Directions, 2026 (“Draft Directions”) on May 20, 2026, proposing conduct-related obligations, standardize recovery practices and enhance accountability for Non-Banking Financial Companies (“NBFCs”) and their recovery agents.

While the RBI (NBFC– Responsible Business Conduct) Directions, 2025 (“Existing Directions”) already prescribe comprehensive requirements relating to fair practices, recovery conduct, and customer grievance mechanisms, the Draft Directions significantly expand the operational and compliance framework, particularly in relation to recovery activities.

The Key Amendments Proposed under the Draft Directions are discussed below:

1. New Definitions Introduced-The Draft Directions newly introduce definitions of:

i. Recovery Agency: Any external entity or individual (excluding NBFC employees) engaged under an outsourcing arrangement to assist in recovering loan dues or taking possession of security — regardless of the contractual label used.

ii. Recovery Agent: A representative of a recovery agency who directly interfaces with the customer during recovery activities.

The amendment clarifies that all outsourced recovery arrangements, irrespective of nomenclature, shall fall within the regulatory ambit.

2. Expanded Recovery Policy Framework

While NBFCs were already required under the existing framework to maintain Board-approved policies governing recovery practices and engagement of employees/recovery agents, the Draft Directions significantly expand the scope and granularity of such policy requirements.

NBFCs are now specifically required to incorporate detailed provisions relating to:

i. collection and recovery of loan dues;

ii. possession of security;

iii. escalation matrix for recovery actions;

iv. recovery in case of demise of borrower; and

v. compensation framework for borrower loss arising from non-compliant recovery actions.

Further, the policy must also prescribe eligibility and due diligence criteria for engagement of recovery agencies which shall conform to the instructions issued by the Reserve Bank (NBFC – Managing Risks in Outsourcing) Directions, 2025, performance evaluation standards, audit and monitoring mechanisms and procedures/penal actions against non-compliant recovery agencies or their agents.

3. Due Diligence and Training Requirements for Recovery Agencies

The Draft Directions introduce enhanced compliance obligations in relation to engagement of recovery agencies. NBFCs are now required to ensure that recovery agents engaged by recovery agencies possess certification from the Indian Institute of Banking and Finance (“IIBF”) upon successful completion of the prescribed Debt Recovery Agent training programme. Existing recovery agents without certification must obtain the same within one year from issuance of the Directions.

4. Enhanced Disclosure Obligations

To strengthen transparency obligations, the NBFCs are required to publicly disclose details of empaneled recovery agencies through branches, websites, mobile applications and other customer-facing platforms. Such disclosures must include, inter alia, the name of the recovery agency, address, nature of entity, geographical area assigned, purpose and period of engagement.

Further, any modification in the list must be updated within seven calendar days, while termination of engagement must be updated immediately.

Further, borrowers are required to be informed about the recovery agency details prior to the first recovery visit.

5. Monitoring of Recovery Calls and Communications

The Draft Directions introduce stricter monitoring obligations relating to recovery interactions. NBFCs cannot assign a recovery case where a borrower has lodged a grievance relating to loan dues or recovery proceedings, until such grievance is finally resolved. Further, NBFCs are required to maintain records of recovery calls, preserve recordings of recovery conversations for a minimum period of six months and inform borrowers that such conversations are being recorded.

Additionally, NBFCs are required to ensure that incentive structures do not encourage harsh or coercive recovery practices.

6. Framework for Taking Possession of Security

The repossession framework, earlier largely applicable to vehicle financing, has now been extended to enforcement of any “Security”. Accordingly, where loan agreements contain possession clauses, NBFCs are now required to clearly specify the notice period, circumstances for waiver of notice, possession procedure, final opportunity for repayment, procedure for return of security and the sale/auction mechanism.

This amendment seeks to enhance transparency and minimise disputes relating to enforcement actions.

7. Significant Amendment relating to Mobile Device Financing such as phone, tablet etc.

One of the most notable amendments under the Draft Directions relates to technology-based recovery mechanisms involving mobile devices financing.

i. Procedural Requirements for Device Restriction

Device restrictions may be imposed only after the loan account has become at least 60 days past due, following issuance of a 21days prior notice and an additional 7days notice to the borrower. Further, such restrictions can be implemented only once the loan account becomes 90 days past due. While the framework significantly strengthens borrower protection and procedural safeguards, the extended timelines may be misused by certain borrowers to delay the recovery process.

ii. Borrower Protection Safeguards

NBFCs are additionally required to ensure that essential functionalities such as internet access, incoming calls, emergency SOS features and government/public safety notifications remain operational at all times. Further, restrictions must be imposed in a graduated manner rather than completely disabling the device ab initio. The Draft Directions also mandate restoration of device functionalities within one hour of curing the default and payment of compensation of ₹250 per hour in case of wrongful restriction or delay in unlocking the device. Additionally, all technology-based restriction mechanisms are required to be uninstalled upon full repayment of the loan.

Most importantly, the Draft Directions expressly prohibit NBFCs from accessing, using, obtaining or retaining any data stored in the borrower’s mobile device under any circumstances.

Interestingly, while the Draft Directions specifically preserve incoming call functionality, they remain silent on outgoing calls. Considering that outgoing call access may also be critical during emergencies for certain borrowers, a question arises as to whether the borrower protection framework should also extend to preservation of outgoing call functionality during the restriction period?

8. Detailed Conduct Requirements for Recovery Personnel

Detailed behavioural standards have been prescribed for recovery personnel, including:

i. interacting only with borrower/guarantor;

ii. visits only between 8:00 AM and 7:00 PM;

iii. respecting borrower’s preferred place of interaction;

iv. avoiding visits during bereavement, marriage or calamitous occasions;

v. issuance of proper receipts and acknowledgements.

vi. in case of microfinance loans, recovery to be undertaken at a mutually designated place, with field (residence/office) visits permitted only upon repeated non-appearance of the borrower.

9. Dedicated Recovery Grievance Mechanism

NBFCs are now required to establish a dedicated mechanism for redressal of recovery-related grievances. The details of such mechanism must be incorporated in the loan agreement, communicated while intimating borrowers regarding appointment of recovery agencies and included in all recovery-related communications, along with the name, email address, telephone number and address details of the concerned grievance redressal officer of the NBFC.

Conclusion

The Draft Responsible Business Conduct Amendment Directions, 2026, mark a significant step towards strengthening the regulatory framework governing recovery practices of NBFCs. The Draft Directions introduce enhanced governance, monitoring and borrower protection measures, while also imposing stricter accountability standards on NBFCs and recovery agencies.

Particular emphasis has been placed on transparency, fair recovery conduct, grievance redressal and regulation of technology-based recovery mechanisms, especially in relation to mobile device financing. Overall, the proposed amendments reflect RBI’s increasing focus on responsible lending practices, customer protection and conduct-based supervision across the NBFC sector.