**Executive Summary**
This document presents the Draft Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Second Amendment Directions, 2026, effective from July 1, 2026. It amends the 2025 Directions, providing updated and comprehensive instructions regarding the conduct of Urban Co-operative Banks (UCBs) in loan recovery and engagement of recovery agents. The amendment includes the insertion of a new section addressing UCB's conduct in recovery, including policy requirements, due diligence, training, responsibilities, and borrower treatment.
**Key Points / Main Content**
* **General:**
* The directions are effective from July 1, 2026.
* These directions modify the Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025.
* Paragraphs 316 to 325 of Chapter VIII on ‘Responsible Lending Conduct' of the 2025 Directions are deleted.
* A new section, "J. Conduct of UCBs in Recovery of Loans and Engagement of Recovery Agents," is inserted after paragraph 325.
* **Policy on Recovery:**
* UCBs must establish a policy on loan recovery, engagement of recovery agents, and security possession.
* The policy must cover eligibility, due diligence, specified activities, code of conduct, performance evaluation, compliance, and handling borrower/guarantor demise cases.
* **Engagement of Recovery Agents:**
* UCBs must implement a due diligence process per RBI guidelines on managing risks in outsourcing.
* Verification of recovery agents' antecedents is required before engagement and regularly thereafter.
* Recovery agents must obtain certification from IIBF or a tie-up institute within one year of these Directions' issuance.
* **Code of Conduct:**
* UCBs must establish a code of conduct for recovery agents and employees involved in recovery.
* UCBs must obtain an undertaking from employees/agents to abide by the code of conduct.
* **UCB Responsibilities:**
* UCBs must prominently display an updated list of engaged recovery agents across all customer interaction channels.
* Upon termination, UCBs must publicize the termination of a recovery agent.
* UCBs must inform borrowers of the recovery agent details in writing.
* **Fair Treatment to Borrowers:**
* UCBs must establish a mechanism to identify borrowers facing repayment difficulties.
* Borrower information disclosure is limited to the extent needed for recovery duties.
* Recovery cases should not be forwarded to employees/agents while a borrower grievance is pending unless the grievance is deemed frivolous.
* UCBs must exercise caution when the borrower's loan is sub-judice.
* UCBs must document and record calls with borrowers/guarantors, informing them about the recording.
* Recovery targets/incentives should not induce harsh practices.
* Legal action should not be the first resort, and due written notice is required before security possession.
* **Taking Possession of Assets:**
* If a possession clause is in the loan contract, UCBs must ensure it is legally valid and brought to the borrower's notice.
* The loan contract must outline notice periods, waiver conditions, possession procedures, final repayment chances, and procedures for returning/selling the security.
* Loan recovery must be done following due process.
* **Periodic Review:**
* UCBs must establish a management structure for monitoring and controlling recovery agent activities.
* UCBs must conduct periodic reviews of the mechanism.
* **Conduct of UCB Employees/Recovery Agents:**
* Employees/agents must carry identification and authorization.
* Adherence to specific guidelines is required, including respecting privacy, maintaining contact hours, selecting appropriate contact places, avoiding inappropriate occasions, designated places for microfinance loans, civil interaction, and authorised premises visits.
* **Harsh Recovery Methods:**
* UCBs and agents are prohibited from using harsh recovery methods like abusive language, inappropriate messages, excessive calls, threatening calls, harassment, violence, or misleading representations.
* **Complaints:**
* UCBs must have a dedicated grievance redressal mechanism for recovery-related issues.
* **Adherence to Other Regulations:**
* UCBs must comply with relevant RBI guidelines and those issued by other authorities.
**Impact Analysis**
**Stakeholder: Urban Co-operative Banks (UCBs)**
* **Impact:** UCBs must revise their existing loan recovery policies and procedures to align with the new directions, including implementing due diligence processes, training programs for recovery agents, and establishing a code of conduct. The changes impact how UCBs manage loan recovery and interact with borrowers facing repayment difficulties.
* **Action Required:** UCBs must establish/revise policies, implement training, update their recovery mechanisms, and ensure compliance with the new guidelines by July 1, 2026.
**Stakeholder: Recovery Agents**
* **Impact:** Recovery agents will need to undergo training and certification and adhere to the new code of conduct. The guidelines impose restrictions on their interactions with borrowers and necessitate proper documentation and ethical practices.
* **Action Required:** Recovery agents must complete required training, obtain certification, and adhere to the UCB's code of conduct and these Directions.
**Stakeholder: Borrowers of UCBs**
* **Impact:** Borrowers will benefit from a more transparent and regulated loan recovery process, with safeguards against harassment and unfair practices. They are entitled to clear communication, grievance redressal mechanisms, and fair treatment during recovery.
* **Action Required:** Borrowers should familiarize themselves with their rights and the procedures outlined in the new directions. They should report any violations of the code of conduct or unfair practices to the UCB’s grievance redressal officer.
Key Entities Referenced
Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Second Amendment Directions, 2026: The primary subject of the document, outlining new instructions for Urban Co-operative Banks.
Reserve Bank of India: The regulator issuing the directions.
Urban Co-operative Banks (UCBs): The entities to which the directions apply.
Banking Regulation Act, 1949: The Act that empowers the Reserve Bank to issue these directions.
Reserve Bank of India (Urban Co-operative Banks – Managing Risks in Outsourcing) Directions, 2025: Referenced policy document related to due diligence.
DOR.MCS.REC.No. /01-01-037/2025-26 February 12, 2026
Draft Reserve Bank of India (Urban Co-operative Banks - Responsible Business
Conduct) Second Amendment Directions, 2026
Certain instructions on matters related to engagement of recovery agents by Urban
Co-operative Banks (UCBs) have been issued to UCBs under the Reserve Bank of
India (Urban Co-operative Banks – 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 UCBs (hereinafter referred to collectively as
“UCBs” and individually as an “UCB”) under the aforesaid Directions.
2. In exercise of the powers conferred by Sections 21, 35A and 56 of the Banking
Regulation Act,1949, 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 (Urban Co-operative
Banks - 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 (Urban Co-
operative Banks – Responsible Business Conduct) Directions, 2025 as under:
In Chapter VIII on ‘Responsible Lending Conduct’, the paragraphs 316 to 325 shall
be deleted. Further, the following section and paragraphs shall be inserted after
paragraph 325, namely:
“J. Conduct of UCBs in Recovery of Loans and Engagement of Recovery
Agents
J.1 Policy
325A. A UCB shall put in place a policy on recovery of loans, engagement of
recovery 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 UCB for
recovery of loan dues from its borrowers / guarantors and the representatives /
employees of such agencies.
J.2 Engagement of recovery agents / UCB employees for recovery of
loans
J.2.1 Due diligence
325B. A UCB 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 (Urban
Co-operative Banks – Managing Risks in Outsourcing) Directions, 2025, as
amended from time to time. A UCB 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.
J.2.2 Training
325C. A UCB 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. A UCB 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.
2J.2.3 Code of Conduct
325D. A UCB, 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 UCB 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.
J.3 Responsibilities of a UCB
J.3.1 Disclosure of information on recovery agents
325E. A UCB 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.
325F. In the event of termination of the agreement with a recovery agent for
any reason, the UCB shall publicize the same to ensure that the borrowers do
not continue to deal with that agent or its representatives / employees.
325G. While forwarding cases to any agent for recovery of default amount, the
UCB 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 UCB shall
immediately notify the borrower of the change.
J.3.2 Fair treatment to borrowers during recovery process
325H. A UCB 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.
325I. A UCB 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 UCB shall put in place
mitigants to ensure that its employees / recovery agents do not transfer or
misuse any customer information in any manner.
325J. Where a grievance has been lodged by a borrower, the UCB shall not
forward the concerned recovery case to an employee / recovery agent till it
finally disposes off the grievance. However, where the UCB 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.
325K. In cases where the subject matter of the borrower’s loan dues is sub-
judice, the UCB shall exercise utmost caution, as appropriate, in referring the
matter to its employee / recovery agent.
325L. A UCB 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 UCB 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 UCB shall take reasonable precautions such as
intimating the borrower / guarantor that the conversation is being recorded, etc.
325M. A UCB 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 325U below.
325N. A UCB may use written communications, telephonic reminders or visits
by its a UCB’s representatives to the borrower’s place or residence as follow
up measures for collection / recovery of loans. However, the UCB 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 UCB shall not initiate any legal action as a first
resort for collection / recovery of loan dues / possession of security.
J.3.3 Taking possession of mortgaged / hypothecated assets
325O. Where a UCB has incorporated a possession clause in the loan contract
/ agreement with a borrower and relies on such possession clause for enforcing
its rights, the UCB 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.
325P. The UCB shall ensure that the recovery of loans or enforcement of
security interest shall be done only by following due process of law.
J.3.4 Periodic review, monitoring and control
325Q. A UCB 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 UCB shall ensure that the
agreement with the recovery agents contains details of such provisions.
325R. A UCB, engaging recovery agents, shall undertake a periodic review of
the mechanism to learn from experience and to effect improvement therein.
J.4 Conduct of UCB’s employees and recovery agents
325S. The UCB’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 UCB / recovery agency. The recovery agent shall also carry the
authorization letter from the UCB. The recovery notice and the authorization
letter shall, among other details, include the telephone / mobile number of the
UCB’s employee / recovery agent and the grievance redressal officer appointed
by the UCB in terms of paragraph 325V below.
5325T. A UCB shall ensure that its employee / agent engaged in activities 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 UCB. 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 UCB 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 UCB.
(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.
325U. The UCB’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.
J.5 Complaints against UCB’s employees and its recovery agents
325V. A UCB 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 325G above. Further, all
recovery related communications issued by the UCB must contain the name,
7email address, telephone number and address of the grievance redressal
officer concerned of the UCB whom the borrower / guarantor can contact.
J.6 Adherence to other regulations issued by the Reserve Bank / other
authorities
325W. In addition to the Directions mentioned herein, a UCB 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