RBI Proposes Strict Rules On Mobile Phone Locking For Loan Defaulters

Under the proposed framework, lenders may restrict certain phone features after prolonged default, but essential services and borrower privacy will remain protected.

The Reserve Bank of India (RBI) has proposed a new set of rules that would allow lenders to disable certain functions on mobile phones financed through loans if borrowers repeatedly default on repayments.

The proposal is part of RBI’s broader draft guidelines aimed at tightening recovery practices, increasing borrower protection and regulating digital lending methods increasingly used by fintech firms and smartphone financing companies.

Under the draft rules, lenders will be allowed to use technology-based restrictions only if the loan was specifically taken to purchase that device. The loan agreement must clearly mention the possibility of such restrictions, the conditions under which they can be imposed, timelines for repayment and the grievance redressal process available to borrowers.

However, RBI has placed several strict safeguards to prevent misuse.

According to the draft framework, lenders cannot immediately lock or disable phones after a missed EMI. Restrictions can begin only after the account becomes overdue for 90 days. Before any action is taken, banks and lenders must follow a multi-stage notice process.

The first notice can be issued once the loan remains unpaid for 60 days, giving the borrower at least 21 days to clear dues. A second mandatory notice must then provide another seven days before any restriction is imposed.

Importantly, RBI has prohibited lenders from blocking critical mobile services. Essential functions such as incoming calls, internet access, emergency SOS features and government or public safety alerts must remain active at all times.

The central bank has also directed lenders to follow a “graduated approach” instead of completely disabling devices immediately. The proposed rules further state that once dues are cleared, lenders must restore restricted functions within one hour.

If there is any wrongful blocking or delay in restoring services, lenders may have to compensate borrowers at the rate of ₹250 per hour until the issue is resolved.

The RBI has also strengthened privacy protections under the draft norms. Lenders will not be allowed to access personal borrower data stored on phones or publicly shame borrowers through social media posts, recordings or sharing of personal information online.

The proposed framework also expands the definition of recovery agents to include those involved in routine EMI collection activities. Banks and recovery agencies will be required to maintain call recordings for at least six months, while contact timings with borrowers will remain restricted between 8 am and 7 pm.

Borrowers must also be informed in advance before any recovery visit takes place. Notices can be sent through SMS, email or physical letters.

The draft rules are expected to come into force from October 1, 2026, after the consultation process is completed.