Explained: What are RBI’s new rules on loan rates and recovery and how they will impact borrowers

The Reserve Bank of India (RBI) has proposed a common guideline to make loan pricing more transparent and has tightened rules governing how banks and other regulated entities recover unpaid dues from borrowers.

The proposed Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026 seek to standardise how lenders set and revise interest rates. At the same time, the RBI’s new framework on the Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents aims to curb intrusive and coercive recovery practices. Here is what the proposed and new rules mean for borrowers.

Could floating-rate loans reset every three months?

Under the proposed loan-pricing framework, floating-rate loans would have to be linked to an internal or external benchmark. For most regulated entities, the benchmark reset frequency cannot exceed three months. The benchmark used for pricing a loan, the frequency at which it is reset, and the reset date would also have to be clearly specified in the loan agreement.

The change could be particularly important when interest rates are falling. A borrower whose loan currently resets only once a year may have to wait several months before a reduction in the benchmark rate is reflected in the loan. More frequent resets could allow changes in benchmark rates to be passed on sooner.

The RBI said the proposed framework is intended to address 'divergent practices' among lenders and establish a broad, principles-based framework for both fixed- and floating-rate loans.

The draft directions are scheduled to take effect from April 1, 2027, subject to the consultation process. The RBI has invited public comments on the draft until September 11, 2026.

Can banks lock a borrower’s phone or laptop to recover a loan?

The central bank has introduced new safeguards against intrusive loan-recovery practices. The framework, issued on August 6, 2026, will take effect from January 1, 2027.

Under the new rules, banks and other regulated entities cannot use technology or other mechanisms to forcibly restrict access to a borrower’s mobile phone, tablet, laptop or similar device to recover unpaid dues on a personal, car, home or other loan.

There is a limited exception when the loan was specifically taken to finance that particular device. Even in such cases, the lender must follow a gradual process and provide the borrower with adequate notice and time.

Can recovery agents threaten or publicly shame borrowers?

Banks must ensure that employees and external recovery agencies receive only the information necessary for recovering dues. Recovery agents cannot use abusive language, make personal attacks, threaten borrowers or publicly shame them.

They are also prohibited from contacting a borrower’s relatives, friends or colleagues to intimidate or pressure them into repayment. The objective is to ensure that loan recovery is carried out through regulated and fair processes rather than through threats, harassment or public humiliation.

Can banks access personal data on a borrower’s device?

Banks and their technology service providers cannot access personal information stored on a borrower’s device for loan-recovery purposes. This includes contacts, photographs, text messages, call records and location history.

Any attempt to access such information for recovery would be contrary to the RBI’s framework and could invite appropriate remedial action.

Do the new rules mean borrowers no longer have to repay their loans?

No. The new protections do not cancel or reduce a borrower’s repayment obligations. Borrowers remain responsible for unpaid EMIs, debt, and applicable interest. Failure to repay can have legal consequences and may affect a borrower’s credit profile and credit score.

However, the RBI has also said that lenders must have systems to address financial distress and explain available resolution options to borrowers who are struggling to repay their loans.

What do the RBI’s changes mean for borrowers?

The steps seek to bring greater transparency to loan pricing while placing clearer limits on how lenders recover unpaid dues. For borrowers with floating-rate loans, more clearly defined benchmark resets could mean that changes in interest rates are passed through more predictably. For borrowers facing repayment difficulties, the new recovery rules provide stronger safeguards against harassment, device restrictions, and misuse of personal data.

The underlying principle is clear. Borrowers remain responsible for repaying their debts but lenders must recover those dues through transparent, proportionate, and regulated processes—not coercive or intrusive tactics.

Siddharth Manchanda, Partner at JSA Advocates & Solicitors said, "The core shift is that NBFCs are being brought into a pricing framework that so far applied only to banks. NBFC pricing has largely been a commercial judgment; under the draft, every loan — fixed or floating — has to sit on a stated benchmark plus a risk-based spread, and cannot be priced below that benchmark. The most consequential provision is the discipline on spreads. Non-credit-risk components of the spread can't be increased for three years from disbursement or the last revision, and can only be reduced on a non-discriminatory basis. Alongside that, the draft standardises how interest is actually computed — monthly rests, daily reducing balance, actual/actual day count. It sounds technical, but divergent conventions have been a real source of borrower confusion, and this closes that."