NBFCs may incur additional costs to train agents under RBI recovery norms | Banking
The Reserve Bank of India’s (RBI) proposed stricter norms on loan recovery, whether carried out in-house or through outsourced agencies, are expected to increase compliance costs for non-banking finance companies (NBFCs); Because a significant number of these lenders, except the larger ones, rely on third-party recovery agencies, and aligning these agencies with the central bank’s proposed framework would require additional training and monitoring costs.
“The cost of those outsourcing recovery activities to a third party may increase. Every outsourcing agency must be trained and certified and comply with the governance standards of the bank or NBFC. This increases the cost to the lender. If an NBFC does not have its own in-house team, the compliance burden will be higher. But from a customer perspective, these guidelines are welcome,” said a senior executive at one of the largest NBFCs in the country.
Large non-banking financial companies (NBFCs), including Shriram Finance and Sundaram Finance, carry out recovery operations in-house rather than outsourcing them to third-party entities.
RBI draft norms prevent coercive bailout practices
In its draft circular, the RBI suggested that lenders and their collection agencies be prohibited from adopting harsh or coercive practices to ensure fair treatment of debtors.
The draft norms prohibit the use of abusive or threatening language, excessive or anonymous calls, inappropriate messages, harassment of debtors or their partners, public humiliation, threats of violence and misleading statements about debt obligations or consequences of non-repayment.
The central bank has made it mandatory for collection agents to undergo training and get certification from the Indian Institute of Banking and Finance (IIBF) under the debt collection agencies programme. NBFCs are required to formulate a comprehensive Code of Conduct for collection agencies and employees engaged in loan collection and obtain commitment from them to comply with these standards before engagement.
Call recording, time constraints under the proposed framework
As per the draft norms, the RBI has asked NBFCs to document the time and number of calls made by employees or recovery agents to borrowers or guarantors and ensure that all such calls are recorded. Recovery representatives may only interact with the debtor or guarantor and should avoid contact with relatives or other partners.
Executives noted that recovery agent fees are often linked to success rates, leading to aggressive practices in some cases. However, they added that industry practices have improved in the last two to three years and the RBI has encouraged lenders to strengthen supervision and training of agents.
Another NBFC official said the draft largely formalizes existing expectations. “RBI has given official color to the earlier guidelines and placed greater responsibility on lenders to train and monitor collection agencies. Most companies have already started complying, so the impact on cost structures may not be significant. However, documentation and accountability requirements may increase compliance costs, especially for firms that rely heavily on outsourced agencies,” the official said.
Recovery-related calls and visits will only be allowed between 8:00 a.m. and 7:00 p.m. Lenders must also honor a borrower’s request to avoid contact at certain times under normal circumstances. Agents were instructed to avoid recovery attempts in inappropriate situations such as death, family emergencies, marriages, or festivals.
Fintech NBFCs may also face compliance impacts
The norms could also impact fintech-focused NBFCs, which rely heavily on automated collection tools but sometimes outsource recovery work. The proposed guidelines are scheduled to come into force from July 1, 2026. The RBI has invited feedback on the draft by March 4, 2026.
