**Executive Summary**
This document outlines the Reserve Bank of India's Second Amendment Directions, 2026, concerning the responsibilities of All India Financial Institutions (AIFIs) in loan recovery and engagement of recovery agents. These Directions, effective from July 1, 2026, modify the 2025 Directions on Responsible Business Conduct. AIFIs are required to implement comprehensive policies and procedures related to loan recovery and agent conduct.
**Key Points / Main Content**
* **General Policy:**
* AIFIs must establish a policy on loan recovery and agent engagement, covering eligibility criteria, due diligence, Code of Conduct, performance evaluation, compliance mechanisms, and procedures/penalties for non-compliant agents.
* The policy must also address loan recovery in cases of borrower/guarantor demise.
* **Engagement of Recovery Agents / AIFI Employees:**
* AIFIs must conduct due diligence on recovery agents, conforming to RBI's outsourcing guidelines, and verify their representatives' antecedents.
* Recovery agents must obtain certification from the Indian Institute of Banking and Finance (IIBF) within one year of these Directions' issuance.
* **Code of Conduct:**
* AIFIs must implement a Code of Conduct for recovery agents and employees involved in loan recovery, obtaining their undertaking to abide by it.
* **Responsibilities of an AIFI:**
* **Disclosure of Information:** AIFIs must prominently display an updated list of engaged recovery agents on all communication channels. Termination of an agent must be publicized.
* Borrowers must be informed of the recovery agent's details.
* **Fair Treatment:** AIFIs must establish a mechanism to identify borrowers facing repayment difficulties and provide necessary guidance.
* Borrowers' information disclosure to employees/agents must be limited.
* Recovery is suspended when a borrower grievance is pending, unless the complaint is deemed frivolous.
* Caution is advised in cases where loan dues are sub-judice.
* AIFIs must document all recovery calls and ensure recordings are made, after intimating the borrower/guarantor.
* Recovery targets must not induce harsh practices.
* Legal action or security possession can only be initiated after due written notice.
* Possession clauses must be clearly communicated to the borrower.
* Recovery of loans and security enforcement must follow due process of law.
* **Periodic Review:**
* AIFIs must establish a management structure to monitor and control the activities of its recovery agents.
* **Conduct of AIFI Employees and Recovery Agents:**
* Agents must carry a copy of the recovery notice, identity card, and authorization letter when visiting borrowers.
* Agents must adhere to guidelines regarding borrower privacy, contact hours, place of contact, and avoiding inappropriate occasions.
* Harsh recovery methods are prohibited.
* **Complaints Redressal:**
* AIFIs must have a dedicated mechanism for grievance redressal, with details provided to the borrower.
* **Adherence to Other Regulations:**
* AIFIs must comply with relevant guidelines issued by the Reserve Bank and other authorities, including TRAI's regulations on commercial communication.
**Impact Analysis**
* **All India Financial Institutions (AIFIs)**
* **Impact:** AIFIs must implement new policies and procedures to comply with the amended directions, including those related to recovery agent engagement, training, and conduct. There will likely be increased administrative and operational overheads.
* **Action Required:** Review and update existing policies, implement due diligence and training processes, establish monitoring and control mechanisms, and ensure compliance with all aspects of the new directions.
* **Recovery Agents**
* **Impact:** Recovery agents must obtain certification from IIBF within one year. They will be subject to stricter oversight and must adhere to the AIFI's Code of Conduct.
* **Action Required:** Obtain certification from IIBF, comply with the AIFI's Code of Conduct, and ensure adherence to ethical recovery practices.
* **Borrowers and Guarantors**
* **Impact:** Borrowers and guarantors will be subject to more transparent and regulated recovery processes. They will have access to grievance redressal mechanisms and protection against harassment.
* **Action Required:** Familiarize themselves with the new guidelines, understand their rights, and utilize the available grievance redressal mechanisms if needed.
Key Entities Referenced
Reserve Bank of India (All India Financial Institutions – Responsible Business Conduct) Directions, 2025: The pre-existing policy that these Second Amendment Directions modify.
All India Financial Institution (AIFI): The entities to which these directions apply. They are required to ensure compliance with the directions related to recovery of loans and engagement of recovery agents.
Reserve Bank of India: The regulator issuing these directions in exercise of powers conferred by Section 45L of the Reserve Bank of India Act, 1934
Reserve Bank of India Act, 1934: This act provides the legal basis for these directions.
DOR.MCS.REC.No. /01-01-040/2025-26 February 12, 2026
Draft Reserve Bank of India (All India Financial Institutions - Responsible
Business Conduct) Second Amendment Directions, 2026
Certain instructions on responsibilities of an All India Financial Institution (AIFI)
employing recovery agents have been issued to AIFIs under the Reserve Bank of India
(All India Financial Institutions – Responsible Business Conduct) Directions, 2025. The
extant instructions have since been reviewed. It has also been decided to issue
comprehensive instructions on conduct related matters in recovery of loans and
engagement of recovery agents to all AIFIs (hereinafter referred to collectively as
“AIFIs” and individually as an “AIFI”) under the aforesaid Directions.
2. In exercise of the powers conferred by Section 45L of the Reserve Bank of India
Act, 1934, the Reserve Bank, being satisfied that it is necessary and expedient in
public interest so to do, hereby issues the Amendment Directions hereinafter
specified.
3. Short Title and Commencement
(1) These Directions shall be called the Reserve Bank of India (All India Financial
Institutions - Responsible Business Conduct) Second Amendment Directions,
2026.
(2) These Directions shall come into effect from July 1, 2026.
4. These Amendment Directions shall modify the Reserve Bank of India (All India
Financial Institutions – Responsible Business Conduct) Directions, 2025 as under:
In Chapter III on ‘Responsible Lending Conduct’, paragraph 32 shall be deleted.
Further, the following section and paragraphs shall be inserted after paragraph
32, namely:
“I. Conduct of AIFIs in Recovery of Loans and Engagement of Recovery
Agents
I.1 Policy
32A. An AIFI shall put in place a policy on recovery of loans, engagement ofrecovery agents for recovery of loan dues and taking possession of security.
The policy shall, inter alia, cover aspects related to eligibility and due diligence
criteria for engagement of recovery agents, specified activities, Code of
Conduct, performance evaluation standards, inspection / audit, control
mechanisms to ensure compliance with statutory / regulatory requirements by
recovery agents and procedures to be followed / penal actions to be taken in
case of non-compliant recovery agents. The policy shall also include aspects
related to recovery of loan dues in case of demise of borrower(s) or
guarantor(s).
Explanation: The term ‘Recovery Agents’ in these Directions shall be read
contextually to mean individuals and / or agencies engaged by the AIFI for
recovery of loan dues from its borrowers / guarantors and the representatives /
employees of such agencies.
I.2 Engagement of recovery agents / AIFI employees for recovery of loans
I.2.1 Due diligence
32B. An AIFI employing the services of recovery agents shall put in place a due
diligence process for their engagement, which shall conform to the instructions
issued by the Reserve Bank in the Reserve Bank of India (All India Financial
Institutions – Managing Risks in Outsourcing) Directions, 2025, as amended
from time to time. An AIFI shall also ensure that the recovery agencies engaged
by it carry out verification of the antecedents of their representatives /
employees at pre-engagement level and subsequently, on an ongoing basis at
a pre-defined periodicity.
I.2.2 Training
32C. An AIFI shall ensure that recovery agents engaged by it have obtained the
certificate from Indian Institute of Banking and Finance (IIBF) after completing
the training programme for Debt Recovery Agents offered by IIBF or any other
institute having a tie-up arrangement with IIBF. An AIFI shall also ensure that
recovery agents already engaged by it, but not holding the aforesaid certificate,
obtain the certificate from IIBF within a period of one year from the date of
issuance of these Directions.
2I.2.3 Code of Conduct
32D. An AIFI, based on the instructions mentioned in these Directions, shall put
in place a Code of Conduct for the recovery agents and its own employees
engaged in activities related to recovery of loans. Further, prior to assigning any
recovery related activities on its behalf, the AIFI shall obtain an undertaking
from its employees / recovery agents that they agree to abide by its Code of
Conduct and other policies, especially related to recovery of loan dues and
taking possession of security.
I.3 Responsibilities of an AIFI
I.3.1 Disclosure of information on recovery agents
32E. An AIFI shall prominently display an up-to-date list of recovery agents
empanelled and engaged with it on all channels through which it engages with
customers, viz., branches / offices or digital platforms such as website, mobile
app, etc. Such list shall include the name of the recovery agents and details of
the individual(s) engaged by it, the period of engagement, etc.
32F. In the event of termination of the agreement with a recovery agent for any
reason, the AIFI shall publicize the same to ensure that the borrowers do not
continue to deal with that agent or its representatives / employees.
32G. While forwarding cases to any agent for recovery of default amount, the
AIFI shall inform the details of the recovery agent to the borrower through a
written notice, either through a letter to his / her current address or SMS on
registered mobile number or email on registered email address, as the case
may be, to ensure due intimation and proper authorization. In case of change
of recovery agent during an ongoing recovery process, the AIFI shall
immediately notify the borrower of the change.
I.3.2 Fair treatment to borrowers during recovery process
32H. An AIFI shall put in place a mechanism for identification of the borrowers
facing repayment related difficulties, engagement with such borrowers and
providing them necessary guidance about the recourse available.
32I. An AIFI shall ensure that the disclosure of borrower’s information to its
employees / recovery agents is limited to the extent required to enable them to
3discharge their loan recovery related duties. Further, the AIFI shall put in place
mitigants to ensure that its employees / recovery agents do not transfer or
misuse any customer information in any manner.
32J. Where a grievance has been lodged by a borrower, the AIFI shall not
forward the concerned recovery case to an employee / recovery agent till it
finally disposes off the grievance. However, where the AIFI is convinced, with
appropriate evidence, that the borrower is making frivolous / vexatious
complaints to avoid recovery, it may continue with the recovery proceedings
even if a grievance is pending with it.
32K. In cases where the subject matter of the borrower’s loan dues is sub-
judice, the AIFI shall exercise utmost caution, as appropriate, in referring the
matter to its employee / recovery agent.
32L. An AIFI shall document the time and number of calls made by its employee
/ recovery agent to the borrower / guarantor for recovery of loan dues. Further,
the AIFI shall ensure that there is a recording of the content / text of the calls
made by the employee / recovery agent to the borrower / guarantor and vice-
versa. Further, the AIFI shall take reasonable precautions such as intimating
the borrower / guarantor that the conversation is being recorded, etc.
32M. An AIFI shall ensure that the recovery targets or the structure of incentives
in the contract with the recovery agent do not induce adoption of harsh recovery
practices as explained at paragraph 32U below.
32N. An AIFI may use written communications, telephonic reminders or visits
by an AIFI’s representatives to the borrower’s place or residence as follow up
measures for collection / recovery of loans. However, the AIFI shall initiate any
legal or other recovery measures including taking possession of the security
only by giving due notice in writing as per applicable statutory provisions.
Accordingly, the AIFI shall not initiate any legal action as a first resort for
collection / recovery of loan dues / possession of security.
I.3.3 Taking possession of mortgaged / hypothecated assets
32O. Where an AIFI has incorporated a possession clause in the loan contract
/ agreement with a borrower and relies on such possession clause for enforcing
its rights, the AIFI shall ensure that the possession clause is legally valid, and
4that such possession clause is clearly brought to the notice of the borrower at
the time of execution of the loan contract / agreement. Accordingly, the terms
and conditions of the loan contract / agreement shall contain provisions
regarding:
(1) notice period before taking possession;
(2) circumstances under which the notice period can be waived;
(3) the procedure for taking possession of the security;
(4) final chance to be given to the borrower for repayment of loan before the
sale / auction of the security;
(5) the procedure for giving the possession of the security back to the
borrower; and
(6) the procedure for sale / auction of the security.
32P. The AIFI shall ensure that the recovery of loans or enforcement of security
interest shall be done only by following due process of law.
I.3.4 Periodic review, monitoring and control
32Q. An AIFI shall put in place a management structure to monitor and control
the activities of its recovery agents and ensure that they refrain from actions
that could damage its integrity and reputation. The AIFI shall ensure that the
agreement with the recovery agents contains details of such provisions.
32R. An AIFI, engaging recovery agents, shall undertake a periodic review of
the mechanism to learn from experience and to effect improvement therein.
I.4 Conduct of AIFI’s employees and recovery agents
32S. The AIFI’s employee / recovery agent, while visiting the borrower, shall
carry a copy of the recovery notice along with his / her identity card issued by
the AIFI / recovery agency. The recovery agent shall also carry the
authorization letter from the AIFI. The recovery notice and the authorization
letter shall, among other details, include the telephone / mobile number of the
AIFI’s employee / recovery agent and the grievance redressal officer appointed
by the AIFI in terms of paragraph 32V below.
32T. An AIFI shall ensure that its employee / recovery agent engaged in
5activities related to collection / recovery of loan dues adheres to the following:
(1) Respect for borrower’s privacy: An employee / recovery agent shall
interact only with the borrower or the guarantor and shall not approach
any other relatives / contacts of the borrower.
(2) Maintaining hours of contact: An employee / recovery agent shall contact
/ visit the borrower / guarantor only between 08:00 hours and 19:00
hours. Further, the borrower’s request to avoid call / visit at a particular
time shall be honoured in normal circumstances.
(3) Place of contact: An employee / recovery agent shall ordinarily contact
a borrower at the place of the borrower’s choice and in the absence of
any specific choice, at the place of his / her residence and if unavailable
at his / her residence, then at the place of business / occupation.
(4) Avoiding recovery calls / visits during inappropriate occasions: An
employee / recovery agent shall avoid inappropriate occasions such as
bereavement in the family or such other calamitous occasion, or
marriage functions, festivals, etc. for making calls / visits to collect /
recover loan dues.
(5) Designated place for collection / recovery of microfinance loans: In case
of microfinance loans, collection / recovery shall be made at a
designated / central designated place decided mutually by the borrower
and the AIFI. However, field staff shall be allowed to make collection /
recovery at the place of residence or work of the borrower if the borrower
fails to appear at the designated / central designated place on two or
more successive occasions.
(6) Interaction with borrower: An employee / recovery agent shall interact
with the borrower in a civil manner. Further, he / she shall maintain
decency and decorum during visits to the borrower’s place for collection
/ recovery of loan dues.
(7) Visit to borrower’s premises: Only the representative(s) authorised by
the AIFI shall visit the borrower’s premises for activities related to
collection / recovery of loan dues.
6(8) Approval for written communication: Written communication, if any, sent
by an employee / recovery agent to the borrower / guarantor shall have
the approval of the AIFI.
(9) Issue of acknowledgement / receipt: An employee / recovery agent shall
promptly give proper acknowledgement / receipt on collection / recovery
of loan dues from the borrower / guarantor.
32U. The AIFI’s employee / recovery agent shall not engage in any harsh
methods towards recovery. Without limiting the general application of the
foregoing, following practices shall be deemed as harsh:
(1) Use of minatory or abusive language;
(2) Sending inappropriate messages either on mobile or through social
media;
(3) Excessively calling the borrower / guarantor and / or calling outside the
prescribed hours;
(4) Making threatening and / or anonymous calls;
(5) Intimidating or harassing the borrower / guarantor and / or his / her
relatives, referees, friends, or co-workers in either verbal or physical
manner, including acts intended to humiliate them publicly or intruding
upon their privacy;
(6) Use or threat of use of violence or other similar means to harm the
borrower / guarantor or their family / assets / reputation;
(7) Making false or misleading representations to the borrower / guarantor,
especially about the extent of the debt or the consequences of non-
repayment.
I.5 Complaints against AIFI’s employees and its recovery agents
32V. An AIFI shall have a dedicated mechanism for redressal of recovery
related grievances. The details of this mechanism shall be provided to the
borrower by including the same under the loan agreement and while advising
the details of the recovery agents as at paragraph 32G above. Further, all
recovery related communications issued by the AIFI must contain the name,
7email address, telephone number and address of the grievance redressal
officer concerned of the AIFI whom the borrower / guarantor can contact.
I.6 Adherence to other regulations issued by the Reserve Bank / other
authorities
32W. In addition to the Directions mentioned herein, an AIFI shall also ensure
compliance with any relevant guidelines issued by the Reserve Bank on related
matters and also with guidelines issued by the relevant authorities from time to
time, including the guidelines issued by Telecom Regulatory Authority of India
(TRAI) on aspects related to commercial communication such as the Telecom
Commercial Communications Customer Preference Regulations (TCCCPR),
2018, as amended from time to time.”
(Veena Srivastava)
Chief General Manager
8