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The Reserve Bank of India has issued comprehensive instructions for Rural Co-operative Banks (RCBs) regarding the recovery of loan dues and the engagement of recovery agencies. These directions mandate that RCBs establish a formal policy covering recovery processes, escalation matrices, and codes of conduct for employees and recovery agents. RCBs must conduct due diligence on recovery agencies, ensure agents are certified by the Indian Institute of Banking and Finance, and maintain transparency by publishing lists of engaged agencies. The update also regulates the use of technology-based device-locking mechanisms for loan recovery, imposing strict conditions on when and how device functionalities can be restricted. Furthermore, the directions prohibit harsh recovery practices and require RCBs to implement a dedicated grievance redressal mechanism for borrowers.
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RBI/2026-2027/228 DOR.MCS.REC.No.198/01-01-038/2026-27 August 6, 2026
Reserve Bank of India (Rural Co-operative Banks - Responsible Business Conduct) Fourth Amendment Directions, 2026
Certain instructions on matters related to engagement of recovery agents by Rural Co-operative Banks (RCBs) have been issued to RCBs under the Reserve Bank of India (Rural Co-operative Banks – Responsible Business Conduct) Directions, 2025. The extant instructions have since been reviewed and it has been decided to issue comprehensive instructions on conduct related matters in recovery of loan dues and engagement of recovery agencies to all RCBs (hereinafter referred to collectively as “RCBs” and individually as an “RCB”) under the aforesaid Directions.
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.
Short Title and Commencement
(1) These Directions shall be called the Reserve Bank of India (Rural Co-operative Banks - Responsible Business Conduct) Fourth Amendment Directions, 2026.
(2) These Directions shall come into effect from January 1, 2027.
(1) In paragraph 4, the following definitions shall be inserted after sub-paragraph 4(23), namely:
“4(23A) Recovery agency means an entity or individual (other than RCB’s own employees) who has been engaged by an RCB, irrespective of the contractual designation / nomenclature used for such engagement, under an outsourcing arrangement to assist in recovery of loan dues from a borrower in default, including taking possession of a security.
Illustration: A Business Correspondent (BC) involved in recovery related activities on behalf of an RCB shall be treated as a recovery agency for the purpose of these Directions.
4(23B) Recovery agent means a representative of a recovery agency who is involved in recovery related activities, on behalf of an RCB, at the point of customer interface.
Explanation: Wherever an individual is directly engaged by an RCB under an outsourcing arrangement for recovery / possession related activities, instructions applicable to recovery agency as well as recovery agent shall apply to such an individual.”
(2) In Chapter VIII on ‘Responsible Lending Conduct’, the paragraphs 369 to 378 shall be deleted. Further, the following section and paragraphs shall be inserted after paragraph 378, namely:
“J. Conduct of RCBs in Recovery of Loan Dues and Engagement of Recovery Agencies
378A. The provisions under this Section shall apply to recovery of loan dues by an RCB from borrowers in default, including taking possession of a security.
Provided that, wherever explicitly specified, these provisions shall also apply, mutatis mutandis, to collection of dues in the normal course from the borrowers who are not in default.
378B. The provisions under this Section shall be without prejudice to any statutory rights available to an RCB, and / or obligations, relating to enforcement of security under any statute, as well as provisions relating to specific recovery actions such as one-time settlement contained in other relevant Directions.
378C. ‘RCB employees’, for the purpose of this Section, shall include those employees of an RCB who are deployed for recovery of loan dues, including taking possession of a security.
J.1 Policy
378D. An RCB shall put in place a policy on collection / recovery of loan dues, including taking possession of a security, by its own employee or recovery agent. The policy shall, inter alia, cover aspects related to trigger(s) for initiation of recovery process, graded actions as per an escalation matrix for loan recovery, code of conduct for employees and recovery agents, recovery of loan dues in case of demise of borrower, a structured framework for handling cases involving financial distress including documented pre-escalation engagement and guidance regarding available resolution options, etc.
378E. Further, with regard to engagement of recovery agencies, the policy shall cover, inter alia, eligibility and due diligence criteria for engagement of recovery agencies, performance evaluation standards, inspection / audit and control mechanisms to ensure compliance with statutory / regulatory requirements, procedures to be followed / penal actions to be taken in case of non-compliant recovery agencies and / or their agents, etc.
378F. The policy shall also incorporate provisions relating to compensation to the borrowers / guarantors for loss arising on account of recovery related actions of the RCB or recovery agencies not consistent with these Directions.
378G. An RCB, deploying a technology-based mechanism for recovery of loan dues in terms of instructions issued at paragraph 378S below, shall incorporate the related aspects under the policy on collection / recovery of loan dues, including but not limited to the restrictions that shall be applied in a gradual manner on a financed mobile device in case of default by the borrower, timelines for issuing notice to the defaulting borrower, role and responsibilities of third party service provider (if the mechanism is not developed or maintained by the RCB), etc.
J.2 Engagement of recovery agencies for recovery of loan dues
J.2.1 Due diligence
378H. An RCB engaging recovery agencies 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 (Rural Co-operative Banks – Managing Risks in Outsourcing) Directions, 2025, as amended from time to time. An RCB or the recovery agencies engaged by it shall carry out verification of the antecedents of the recovery agents at pre-engagement level and subsequently, on an ongoing basis at a pre-defined periodicity as specified in the RCB’s policy.
J.2.2 Training
378I. An RCB shall ensure that the recovery agency engages only those agents who 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 RCB shall also ensure that recovery agents already engaged by its recovery agencies, but not holding the aforesaid certificate, obtain the certificate from IIBF within a period of one year from the effective date of these Directions.
J.2.3 Code of Conduct for recovery agents and RCB employees
378J. An RCB, based on the instructions mentioned in these Directions, shall put in place a code of conduct for recovery agents and its own employees. Where a recovery agency has been engaged, the RCB shall obtain an undertaking from the recovery agency that its recovery agents agree to abide by the code of conduct.
J.3 Responsibilities of an RCB
J.3.1 Disclosure of information on recovery agencies
378K. An RCB shall make available an up-to-date list of recovery agencies empanelled with or engaged by it on its website. Such list shall include the name and other details of the recovery agencies such as type (corporate / individual), correspondence address, the period of engagement and purpose of engagement (recovery / possession of security). The RCB shall update the list within seven calendar days of any modification to the list. However, in the event of termination of the agreement with a recovery agency for any reason, the RCB shall promptly update such list.
378L. While forwarding a case to any recovery agency for recovery of loan dues through in-person visit to the place of the borrower / guarantor, the RCB shall intimate the details of the recovery agency to the borrower / guarantor at least one day prior to the first visit.
