RBI tightens rules on recovery agents for all regulated entities

The Reserve Bank of India (RBI) has issued comprehensive directions on the conduct of loan recovery and engagement of recovery agencies for all regulated entities, including Small Finance Banks, Local Area Banks, Regional Rural Banks, Urban Co-operative Banks, Rural Co-operative Banks, Non-Banking Financial Companies (NBFCs), Housing Finance Companies, and All India Financial Institutions. The new rules will take effect from January 1, 2027.

The directions, issued on August 6, 2026, replace earlier fragmented instructions. They require each entity to put in place a board-approved policy covering the entire recovery process, including triggers for initiation, graded actions, a code of conduct, handling of borrower distress, and compensation for losses caused by non-compliant recovery actions. The RBI has also defined 'recovery agency' and 'recovery agent' uniformly across all categories, bringing outsourced agents and business correspondents involved in recovery under the same framework.

The new rules apply to recovery from borrowers in default and, where specified, to normal collections. They are without prejudice to statutory rights on security enforcement or one-time settlements. The RBI said the review was undertaken in public interest.