RBI Rules on Recovery of Digital Loans
Loan apps follow the same recovery rules as banks, plus a few written just for them.
A digital loan is one where the lender finds the customer, checks credit, approves and pays out mostly through an app or website. Many of these loans are small, short and unsecured, so when they go overdue, recovery is often handled by the app's partner company or a recovery agency, by phone.
RBI's own digital lending Directions name unethical recovery practices among the main concerns with loan apps, so they include recovery rules of their own. For NBFCs these now sit in Chapter III of RBI's Credit Facilities Directions, 2025, issued on 28 November 2025.
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Terms You Need
- Regulated entity (RE)
- The actual lender: a bank or NBFC regulated by RBI. The loan is in its books, even if you applied through an app.
- Digital lending app (DLA)
- The mobile app or web platform through which the digital loan is offered.
- Lending service provider (LSP)
- A company acting as the lender's agent for parts of the digital lending process, which RBI's definition says can include recovery.
- Key Fact Statement (KFS)
- A short standard sheet of the loan's main terms, including the annual percentage rate (APR) and charges, that the lender must give the borrower.
What RBI's Digital Lending Rules Say About Recovery
- checkWhen a recovery agent is assigned, or changed, the borrower must get the agent's details by email or SMS before the agent contacts them.
- checkAn LSP acting as a recovery agent must follow RBI's conduct rules for recovery, and the lender must guide it to do so.
- checkThe lender stays fully responsible for everything the LSP does. Outsourcing does not reduce its liability.
- checkApps must not access the borrower's files, contact list or call logs. So calling a borrower's contacts using data taken from their phone is not allowed.
- checkRepayment goes directly into the lender's bank account, not through an LSP's account.
- checkCash collected on an overdue digital loan must be credited in full to the borrower's account on the same day.
- checkAny fee the lender pays an LSP for recovery cannot be charged to the borrower or taken out of the money recovered.
Complaints About a Loan App
The lender and any LSP that deals with borrowers must each name a nodal grievance redressal officer, whose contact details appear on the app, the website and the KFS. Responsibility for resolving the complaint stays with the lender.
If the lender rejects the complaint, the borrower is unhappy with the reply, or there is no reply within 30 days, the borrower can complain to RBI through its Complaint Management System under the Reserve Bank Integrated Ombudsman Scheme, 2026.
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Phone Locking for Loans on a Financed Phone (From 2027)
RBI's recovery amendments of August 2026, effective 1 January 2027, deal with lenders that lock a borrower's phone or laptop remotely. A lender may restrict a device only to recover a loan that financed that same device, and only if the loan agreement clearly allows it.
No restriction can start until the loan is 30 days past due and the borrower has been sent notices; full restrictions only after 60 days, and outgoing calls cannot be blocked before 60 days. Incoming calls, SMS and emergency SOS must always work. Restrictions must be lifted within one hour of payment, or the lender pays ₹250 an hour, capped at the loan amount. The lender cannot use the phone's contacts, messages, photos or location for recovery.
How the DRA Exam Tests This
Going by the syllabus, expect questions on who is responsible (the lender, always), how the borrower must be told about the recovery agent (email or SMS, before contact), and whether a loan app may use a borrower's contact list (no).
The trap is the LSP. Options like "the LSP is solely responsible for its recovery agents" sound reasonable but are wrong: RBI makes the regulated lender liable for every act and omission of its LSP.
FAQs
Can a loan app call my contacts for recovery?expand_more
RBI's rules bar lending apps from accessing a borrower's contact list or call logs, and harassing a borrower's friends and relatives is a banned recovery practice. A complaint goes to the lender's grievance officer, then to RBI's Ombudsman.
How will I know who the loan app's recovery agent is?expand_more
The lender must send you the recovery agent's details by email or SMS before the agent contacts you, and again if the agent changes.
Who is responsible for a loan app's recovery agent?expand_more
The regulated lender, meaning the bank or NBFC that gave the loan. RBI makes it fully responsible for the acts of its lending service providers.
Can a lender lock my phone if I miss an EMI?expand_more
From 1 January 2027, only if that phone was bought with the loan, the agreement allows it, and the loan is at least 30 days past due after notices. Essential functions like incoming calls and SOS must keep working.
Next steps
- RBI Recovery Rulesarrow_forward
- Harassment Complaintsarrow_forward
- NBFC Fair Practices Codearrow_forward
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