RBI Guidelines on Personal Loan Settlement & Recovery

The Reserve Bank of India (RBI) has issued clear regulatory directives to ensure that debt recovery and compromise settlements are conducted transparently, ethically, and without harassment. Borrowers facing personal loan default have robust statutory protections.

1. Framework for Compromise Settlements (June 2023 Circular)

Under the RBI Master Circular on Compromise Settlements and Technical Write-offs, Regulated Entities (REs)—including all scheduled commercial banks, NBFCs, and cooperative banks—are mandated to:

• Maintain clear, board-approved policies for undertaking compromise settlements with delinquent borrowers.
• Ensure transparent delegation of power for approving haircuts across managerial grades.
• Permit compromise settlements with genuine defaulters who suffer financial distress, granting a minimum cooling period before fresh borrowing eligibility.

2. RBI Code of Conduct for Recovery Agents

Under the RBI Fair Practices Code, banks and their outsourced recovery agents are strictly prohibited from violating borrower dignity:

• Permissible Calling Hours: Recovery calls or visits are strictly confined to 8:00 AM to 7:00 PM. Calls at night or early morning are illegal.
• No Intimidation or Abuse: Use of threatening language, humiliation in front of family or neighbors, or unannounced visits to workplaces is strictly forbidden.
• Right to Privacy: Calling friends, relatives, or office colleagues regarding a personal debt violates RBI privacy mandates.