New Delhi – The Reserve Bank of India (RBI) has clarified strict new rules governing when banks can remotely restrict or disable a borrower's smartphone for loan recovery, effective January 1, 2027. These measures are only permissible under specific, limited circumstances and include significant safeguards for borrowers.
Restrictions Only for Financed Devices
Under the new framework, device-locking technology can only be deployed when the loan was explicitly taken to purchase the mobile phone, tablet, or laptop that is being restricted. The loan agreement must clearly and unambiguously state that such action is permitted and outline the precise procedure to be followed.
Phased Approach to Device Restrictions
The central bank has mandated a phased approach to implementing device restrictions:
- 30 Days Past Due: Banks cannot disable or restrict any functionality until the loan account becomes 30 days past due. This can only occur after the borrower has received notices to repay the outstanding amount. After this period, banks may gradually impose restrictions on non-essential functions.
- 60 Days Past Due: The full set of restrictions permitted under the loan agreement can only be implemented once the loan is 60 days past due. Crucially, outgoing calls cannot be blocked before this 60-day threshold.
Essential Services Must Remain Accessible
Even when restrictions are imposed, the RBI stipulates that certain essential features for the borrower's safety and livelihood must remain functional. These include:
- Incoming calls
- SMS services
- Emergency SOS functions
Banks must also ensure that restrictions do not impede borrowers from carrying out work-related activities. Furthermore, borrowers retain the right to view the status of any restrictions imposed on their devices at any time.
Compensation for Wrongful Actions and Data Privacy
To protect borrowers, the RBI has introduced compensation provisions. If a bank wrongly restricts a financed device or fails to restore full functionality within one hour after dues are cleared, it must compensate the borrower ₹250 per hour. This compensation is capped at the total amount of the loan disbursed.
Significantly, banks and their technology partners are strictly prohibited from accessing or using a borrower's personal data, including contacts, messages, call logs, photographs, or location history, for loan recovery or any other purpose. Borrowers also maintain the right to prepay their loan, either partially or in full, at any stage.