RBI Proposes Allowing Lenders to Lock Customer’s Phone for Defaulting in EMIs

Key Takeaways 

1. RBI seeks permission for lenders to disable some functionalities on a device obtained via loan if the person delays paying EMIs for 90 days. These directions will come into effect on October 1, 2026, and require borrower’s consent and protect basic necessities such as calling in an emergency.
    
2. In 2024, the RBI requested lenders to stop phone-locking practices after receiving complaints from consumers. RBI Governor, Mr. Sanjay Malhotra, mentioned in October 2025 that the central bank was studying the pros and cons of the mechanism.

Phone’s EMI is Not Paid Yet? Then, the RBI Allows Banks to Do Something to You!

The RBI issued a draft named “Commercial Banks (Responsible Business Conduct) Amendment Directions, 2026,” which seeks permission for banks and NBFCs to remotely lock phones when the borrower fails to pay their debt due.

This move is expected to impact millions of Indians since over one-third of all consumer electronics, including smartphones, are purchased through small-ticket loans in India. 

According to Home Credit Finance’s survey in 2024, a significant advantage in the short run will be the increased ability for financial institutions to collect on defaulted loans. 

On the other hand, everyday borrowers will face the threat of losing their phones they use daily for personal or work purposes.

What Does This Mean for India’s More Than 1.16 Billion Mobile Connections?

India boasts more than 1.16 billion mobile connections, and thus smartphones have become indispensable in the country’s day-to-day living. Losing partial phone accessibility means disrupting livelihood for low-income borrowers.

However, the RBI ensured borrowers’ rights with several safeguards:

Data privacy Banks would not be permitted to obtain any information from the borrower’s cell phone for loan recovery purposes.

Expert Views and Changes Needed

In 2024, the RBI imposed restrictions on lenders using pre-installed device management applications to remotely lock smartphone functionality following widespread customer complaints of abuse and violations of privacy. 

However, this decision has significantly raised NPAs in small-ticket consumer durable loans. The context explains why the RBI is now searching for balance.

An effective implementation of the idea may lead to advantages in the form of better loan recovery, extended access to lending, and possible lower interest rate. 

Still, many experts warn about serious risks associated with locking people’s phones regarding privacy, livelihood, and misuse. The draft includes the definition of ‘Recovery Agencies’ and ‘Recovery Agents,’ and recovery agents must get certified.

Conclusion

The draft regulates an existing market practice, but it comes with severe implications for borrowers. The regulations seem tough, but at the heart of the matter, there lies a question about whether the lender shall be given the right to jeopardise a borrower’s livelihood. The draft norms are open to public comments till May 31, 2026.

FAQs 

Q1. Can banks lock my smartphone if I miss EMI payments?
Yes. Under RBI’s draft proposal, lenders may be allowed to remotely restrict some phone functions if a borrower fails to pay EMIs for more than 90 days. However, emergency calls, incoming calls, internet access, and government alerts cannot be blocked.

Q2. Will banks forgive a missed EMI automatically?
No. Missing a loan EMI does not mean the payment is forgiven. Banks usually send notices and may charge penalties or take recovery action if payments remain overdue for a long time.