Reserve Bank of India has proposed comprehensive recovery conduct norms for Urban Co-operative Banks (UCBs) and Rural Co-operative Banks (RCBs), introducing stricter borrower protection measures and prohibiting public shaming during loan recovery processes.
The draft Second Amendment Directions, 2026, seek to establish uniform conduct standards for loan recovery practices and the engagement of recovery agents across co-operative banks. The proposed framework is expected to come into effect from July 1, 2026, following public consultation.
Under the draft norms, co-operative banks will be required to formulate a detailed policy covering loan recovery, engagement of recovery agents, possession of security assets, audit mechanisms, due diligence procedures, and penal action in cases of misconduct.
The RBI has also proposed mandatory background verification and certification requirements for recovery agents. Recovery personnel engaged by banks will need certification from the Indian Institute of Banking and Finance and banks must conduct due diligence in line with outsourcing regulations.
The draft directions place restrictions on recovery-related communication and prohibit coercive practices. Recovery agents will only be permitted to contact borrowers between 8 am and 7 pm. The framework also bars abusive language, intimidation, harassment, social media shaming, excessive calling, anonymous communication, and public humiliation of borrowers or their family members.
Banks will additionally be required to record recovery calls, inform borrowers in advance regarding assigned recovery agents, and establish dedicated grievance redressal systems for recovery-related complaints.
The RBI clarified that lenders must not initiate legal proceedings or possession of secured assets as the first course of action and must follow due legal process before taking recovery measures.
The proposed norms are part of broader regulatory efforts to strengthen governance and compliance standards across co-operative banking institutions while ensuring fair treatment of borrowers during debt recovery proceedings.
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