Restoring Dignity in Debt Recovery

Maj (Retd) Ashok K Razdan

The Government of the day has been emphasising the importance of starting own ventures / start-ups by setting up schemes like Start-up, India Seed Fund Scheme (SISFS), Pradhan Mantri Mudra Yojana (PMMY), Stand up India, Prime Minister’s Employment Generation Programme (PMEGP ), etc. Other critical support includes Credit Guarantee Fund (CGTMSE) for collateral-free loans, etc. Those venturing into these businesses / start-ups would do so with a belief of a prosperous business venture in the near future. Though, they would evaluate that if the business does not do well under market pressure, natural calamities and epidemics like Covid, etc., it would mean financial loss, emotional hardship, or even reputational, strain. But, no one would imagine that such unfortunate failure could spiral into a level of humiliation and frustration so acute that it pushes not only the borrower, but even the family members , to the brink of ending their lives. A number of recent incidents, mostly from Bihar and mostly pertaining to the poor and vulnerable section of the society ,suggest that for some financially vulnerable households, the journey from indebtedness to despair has been alarmingly short.
In March 2024, in Muzaffarpur Dist. ,a couple was found dead for not having been able to withstand the mounting recovery pressures from recovery agents for overdue cooperative loan. In June 2024, an elderly couple in Saran district , unable to withstand the harassment and repeated recovery visits for repayment of a small microfinance loan, ended their lives. In November 2025, in Banka Dist. , members of a family consumed pesticides over mounting debt and pressure from recovery agents. Most recently, in December 2025, a 35 year old woman and a mother of three kids, from Muzaffarpur Dist. ,died by consuming pesticide. Her family claimed persistent harassment by recovery agents over overdue in repayment of instalments. In yet another shocker, in Madhepura Dist. , a 12 year old girl died as her father’s motorcycle was forcefully taken away by loan recovery agents while the father was on route to hospital for treatment of the girl. These deaths bring to light the vulnerability of elderly and low income borrowers when recovery practices become insensitive to circumstances and rely on intimidation.
A loan is a commercial contract. Default is a financial setback. It should not become a source of fear, shame, or fatal despair. The true test of a mature financial system lies not only enforcing repayment, but in ensuring that recovery is pursued with restraint, proportionality, and respect for human dignity.

Data in public domain shows that the total number of complaints handled by the Banking Ombudsmen appointed by the RBI , have sharply gone up from around seven lakh in FY 2022-23 to around 13.34, lakh in FY 2024-25 . Though the RBI ‘s Annual Report does not provide separate count of complaints exclusively on harassment by recovery agents, yet one cannot dispute that a significant number of complaints received at the RBI Ombudsman offices pertain to the harassment caused by the recovery agents / agencies hired by the lenders for recovery of over-dues.
Continued instances of harassment caused by the recovery agents has prompted RBI to issue instructions to the lenders to be more sensitive towards the borrowers as part of its broader consumer protection agenda. Fully aware of the borrowers rights – right to dignity and respect – right to privacy – right to limited contact hours – right to transparency – right to due process – right to grievance redressal and to ensure a level playing field between the lenders and the borrowers , RBI has now (on 12 Feb 2026) issued a fresh set of draft guidelines on the conduct of recovery agents and loan recovery practises. These draft “2nd amendment directions”, propose comprehensive rules, covering the engagement, training, conduct, and restrictions on recovery agents with the aim of enhancing borrower protection and curbing coercive practices. And, therefore, have to be seen as a significant and welcome step to regulate engagement of loan recovery agents by banks, non banking finance companies and other financial institutions to stop harassment , coercive/unethical debt collection practices, and to improve transparency and accountability in the recovery process to protect customers within formal credit system . This will also promote fair treatment and reduce legal and reputational risks to the lenders.

By mandating structured training for recovery agents and requiring the recording of all telephonic interactions with borrowers, the RBI has acknowledged longstanding concerns regarding coercive recovery practices. However, while the intent of the proposed framework is commendable, its effectiveness will ultimately depend on the practical safeguards built into its implementation. The requirement that all recovery agents must undergo formal training is an important reform. Professional training that emphasises legal procedures, customer rights, and the obligation to interact in a “civil manner” can help reduce instances of harassment and misconduct. Equally important is the proposal to mandate recording of all phone calls between recovery agents and the borrowers. In principle, such recordings create an audit trail, deter abusive language, and provide documentary evidence in the event of disputes. This measure could protect both borrowers and lenders by ensuring transparency and discouraging false allegations. However, the mere existence of recorded calls does not automatically guarantee fairness or accountability. A significant practical concern arises from the asymmetry of control over these recordings. Recovery agencies typically maintain exclusive custody of call records. In situations where a borrower independently records an abusive call, agencies tend to deny having made the call or question the authenticity of the borrower’s recording. It has also been seen that on escalation of a dispute, lenders say that the caller or the number used for calling do not represent their authorised recovery agency and thus deny their involvement. Therefore, without an independent mechanism for storage, verification, the ownership of the number used for calling and retrieval of call recordings, the proposed rule risks becoming a procedural formality rather than a substantive safeguard. For the reform to be meaningful, borrowers should have the right to obtain copies of call recordings, and recordings should be stored in tamper-proof systems subject to regulatory audit. Borrowers should also have the right to record calls and visits of the recovery agents.

To ensure that the objectives of transparency, dignity, and fairness are fully realised, the final regulations must go beyond mandating call recordings and training modules. They must establish a robust architecture of data governance, independent verification, and comprehensive oversight of both telephonic and in-person recovery practices. Without such structural safeguards, even well-intentioned reforms may remain vulnerable to selective compliance or procedural circumvention. Stronger safeguards around data control are essential too. It is not sufficient to mandate that calls be recorded if the custody and control of those recordings remain exclusively with the recovery agency or the lending institution. The regulations should mandate secure, tamper-proof storage of all recovery-related communications in centralised systems subject to regulatory standards. Recordings should be time-stamped, encrypted, and retained for a clearly specified minimum period. Most importantly, borrowers must be granted a clear and enforceable right to access copies of recordings relating to them within a defined timeframe upon request. Denial of access, unexplained deletion, or selective production of records should attract strict penalties. Audit logs should capture any instance of access, editing, or deletion of recordings to prevent manipulation. These measures would transform call recording from a nominal compliance requirement into a meaningful accountability tool.
Independent auditability is equally critical to bridge the asymmetry of power between borrowers and financial institutions. Oversight cannot rely solely on internal compliance certifications by banks. The regulations should require periodic third-party audits of recovery practices, including random sampling of call recordings and verification of adherence to prescribed conduct standards. Audit findings should be reportable to the regulator and, in anonymised form, publicly disclosed to promote systemic transparency. Complaint-driven reviews should be supplemented by proactive inspections. Where a borrower alleges abusive conduct, an independent review mechanism should be triggered automatically rather than leaving the matter to internal departmental scrutiny. The regulator may also consider establishing a digital grievance tracking portal that provides complainants with real-time status updates, ensuring procedural fairness and reducing delays that discourage reporting.
The regulatory framework must also explicitly address in-person recovery practices. Physical visits are often the most sensitive and potentially coercive aspect of recovery operations. The final regulations should reiterate permissible hours for visits, mandate prior written or electronic intimation to the borrower, and strictly prohibit interaction with unrelated third parties such as neighbours or colleagues. Every field visit should be digitally logged in advance, capturing the agent’s identity, purpose of visit, time, and location. Post-visit reporting should be mandatory and subject to supervisory review. Where feasible and proportionate, technological solutions such as GPS-enabled attendance verification or body-worn recording devices may be considered, subject to privacy safeguards. At a minimum, any face-to-face interaction should be documented in a manner that allows independent verification if disputes arise. Without regulation of field conduct, there remains a risk that improper practices will migrate from recorded telephonic channels to unmonitored physical interactions.
Collectively, these enhancements would operationalise the principles of transparency, dignity, and fairness. Transparency requires not only the existence of records but equal access to them and protection against tampering. Dignity demands that recovery efforts respect personal boundaries, privacy, and family life. Fairness requires neutral oversight mechanisms capable of impartially evaluating allegations of misconduct. By embedding these safeguards into the final regulatory framework, the system would move from reactive complaint management toward proactive ethical governance of recovery practices. In doing so, the RBI would reaffirm its commitment to balancing the legitimate right of banks to recover dues with the equally important right of borrowers to be treated with respect and dignity.
(The writer is a retired General Manager of Reserve Bank of India)

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