Collection Operations and the Debt Recovery Procedure
From a missed EMI to settlement or court: who does each step, and what the agent may and may not do.
Collection operations are everything a lender does to get an overdue loan paid: reminders, calls, field visits, settlements and, when all of that fails, legal action. The recovery procedure is the order in which those steps happen and who is allowed to do each one.
A recovery agent works inside this process, not above it. The bank or NBFC decides when a case goes to an agency, what the borrower is told, and whether to go to court. The agent's job is to contact the borrower lawfully, collect, give a receipt and report back.
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The Recovery Process, Step by Step
Take a two-wheeler loan where the EMI due on 5 June is not paid. This is the usual path the case follows.
- 1
The EMI is missed
The lender's own team sends SMS reminders and makes calls. Most accounts are paid at this stage, before any agency is involved.
- 2
The account starts ageing
RBI groups overdue loans by days past due: SMA-0 (1-30 days), SMA-1 (31-60 days) and SMA-2 (61-90 days). A term loan overdue for more than 90 days is classified as a non-performing asset (NPA).
- 3
The case is assigned to a recovery agency
The lender must tell the borrower which agency will contact them. For a digital loan, the agent's details go to the borrower by email or SMS before the agent makes contact.
- 4
The agent makes contact
Recovery calls are allowed only between 8 a.m. and 7 p.m., and from 1 January 2027 the same window applies to visits. On a visit, the agent shows an ID card and carries the lender's authorisation letter and a copy of the notice sent to the borrower.
- 5
Payment is collected and receipted
Every payment gets a proper receipt. Under RBI's digital lending rules, cash collected on a digital loan must show in the borrower's account the same day.
- 6
The lender escalates or settles
If collection fails, the lender (not the agent) decides on legal action under the SARFAESI Act, a DRT case, Lok Adalat or a civil suit, or offers a settlement.
Who Is Responsible for What
| Party | Main duties in the recovery process |
|---|---|
| Lender (bank or NBFC) | Board-approved recovery policy, informing the borrower about the agency, keeping a call record, running a grievance mechanism. Stays responsible for everything its agents do. |
| Recovery agency | Background checks on its agents, engaging only IIBF-certified agents, following the lender's code of conduct. |
| Recovery agent | Identifying themselves, contacting only the borrower or guarantor, staying civil, issuing receipts, never using threats or force. |
| Borrower or guarantor | Can ask for the agent's ID and authorisation, ask for a convenient time and place (written into the 2027 rules), and complain to the lender and then to the RBI Ombudsman. |
The Debt Recovery Policy
Every lender that uses recovery agents needs a written policy on collection and recovery. RBI's amendments of August 2026, which apply from 1 January 2027, spell out what it must cover: what triggers recovery, a step-by-step escalation matrix, a code of conduct for staff and agents, recovery when a borrower dies, and a framework for borrowers in genuine financial distress, including talking to them before escalating.
The same rules make the lender keep an up-to-date list of its recovery agencies on its website, give the borrower the agency's details at least one day before the first visit, log the time and number of every recovery call, and keep call recordings for six months.
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The Rules Change on 1 January 2027
RBI issued new recovery-conduct rules for commercial banks and NBFCs on 6 August 2026, effective 1 January 2027. Older rules (RBI's 2008 guidelines on recovery agents and the 2022 instruction on calling hours) still describe most of the same duties. IIBF only tests RBI guidelines issued up to its cut-off date, and these were issued after the 30 June 2026 cut-off, so they can first appear in exams held from March 2027.
How the DRA Exam Tests This
Expect process questions: which step comes first, who must inform the borrower about the agency, what the agent must carry on a visit, or who decides to file a case in the DRT. The common trap is an option that hands the agent a lender's power, such as "the agent may seize the vehicle without notice" or "the agent decides on legal action". The lender decides; the agent acts within its policy.
IIBF's rules say questions can cover RBI guidelines issued up to a cut-off date: 31 December for exams held March to August, and 30 June for exams held September to February.
FAQs
What is the loan recovery process in a bank?expand_more
Reminders from the bank first, then assignment to a recovery agency with notice to the borrower, then calls and visits within permitted hours, then settlement or legal action under laws such as SARFAESI or through the DRT or Lok Adalat if the dues stay unpaid.
After how many days is a loan sent to a recovery agent?expand_more
RBI sets no fixed day for this. Each lender's recovery policy decides the trigger. RBI's day bands (SMA-0, SMA-1, SMA-2 and NPA after 90 days) are what most policies are built around.
What documents must a recovery agent carry?expand_more
An identity card, an authorisation letter from the bank or NBFC, and a copy of the notice the lender sent the borrower. The letter and notice must show the agency's phone number.
Who is responsible if a recovery agent misbehaves?expand_more
The lender. RBI treats banks and NBFCs as responsible for the actions of the agents they engage, so a complaint goes to the lender first and then to the RBI Ombudsman.
Next steps
- RBI Recovery Rulesarrow_forward
- Field Visit Etiquettearrow_forward
- Strategy & Counsellingarrow_forward
- Syllabusarrow_forward
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