RBI Clarifies Uniform Asset Classification Under Co-Lending Confined to the Co-Lent Exposure Only

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Background

The Co-Lending Arrangements Directions, 2025 (now subsumed within Para B of the RBI (Non-Banking Financial Companies — Transfer and Distribution of Credit Risk) Directions, 2025) introduced a requirement for uniform borrower-level asset classification across co-lending partners. Paragraph 124 of the Directions provides:

“NBFCs shall apply a borrower-level asset classification for their respective exposures to a borrower under CLA, implying that if either of the REs classifies its exposure to a borrower under CLA as SMA / NPA on account of default in the CLA exposure, the same classification shall be applicable to the exposure of the other RE to the borrower under CLA. NBFCs shall put in place a robust mechanism for sharing relevant information in this regard on a near-real time basis, and in any case latest by end of the next working day. “

The intent of this provision, read alongside RBI’s long-standing IRACP framework, was clear: credit stress is a condition of the borrower, not of a specific loan. Once any co-lender classified its share of the co-lent exposure as SMA or NPA, the other co-lender was required to mirror that classification for its own share.

The Interpretive Question

The phrase “under the CLA” in paragraph 124 gives rise to 2 divergent methods:

  1. Borrower-level classification applies across all exposures of a co-lender to the borrower, including non-co-lent loans, once any default arises in the co-lent exposure; or
  2. The uniform classification obligation is confined to the co-lent exposure itself. A default in the co-lent loan does not compel reclassification of the co-lender’s non-colent loans to the same borrower, nor does a default in an independent loan trigger any obligation under paragraph 124.

We had earlier made a case for interpretation 1 above in our write-up Does Co-lending Make Default a Communicable Disease? keeping in mind the principle of borrower-level asset classification under IRACP norms. However, an RBI clarification received by a regulated entity provides otherwise. 

The RBI Clarification

RBI has clarified that the uniform asset classification requirement under paragraph 124 is limited to the exposure under the co-lending arrangement. It does not extend to independent loans of a co-lender to the same borrower that are outside the CLA.

The implications of this clarification are as follows:

  • Co-lent loan defaults:
    • If Co-Lender 1 classifies its share of the co-lent loan as SMA/NPA, Co-Lender 2 must apply the same classification to its share of that loan. However, Co-Lender 2 is not required, solely on account of the co-lent loan defaulting, to reclassify any separate, independent loan it holds to the same borrower outside the CLA.
  • Standalone loan of Co-Lender 2 defaults i.e. default in an independent loan:
    • A default or downgrade by Co-Lender 2 on a non-CLA loan to the same borrower does not, of itself, trigger any information-sharing obligation or classification consequence for Co-Lender 1 under paragraph 124.

It is, however, also worthwhile to mention that REs continue to remain independently subject to their own borrower-level classification obligations under the IRACP norms. Where a co-lender has knowledge of default in a borrower’s other obligations, its own prudential framework may require appropriate classification of its standalone exposures. Further, with fortnightly CIC reporting coming in effect from July 2026, co-lenders will have near-regular visibility into a borrower’s credit profile across lenders. It would therefore be increasingly difficult for a co-lender to retain a favourable asset classification on a standalone exposure where the borrower’s credit record reflects a default on other loans. 

Impact on Ind AS entities is also worth noting. While the RBI clarification limits the uniform asset classification requirement to the co-lent exposure, entities following Ind AS may still need to evaluate whether a default on the co-lent loan constitutes a Significant Increase in Credit Risk (SICR) for the borrower. The occurrence of default on any material obligation may indicate deterioration in the borrower’s creditworthiness and could be a relevant factor in assessing the staging of other exposures to the same borrower. Accordingly, even though asset classification consequences may not extend beyond the co-lent exposure, the information regarding such default may influence the ECL assessment and provisioning for other loans held by the lender, depending on its ECL framework.

RBI attempts to woo fleeing foreign investors

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– Vinita Nair and Saloni Khant | corplaw@vinodkothari.com

In light of the outflow of $13.7 billion by foreign institutional investors in less than 2 months and the consequent fall in rupee, the RBI governor has issued a press release dated June 5, 2026 introducing various measures to pull in foreign capital such as slashing tax on investment in G-secs, removing restrictions thereon, enabling foreign investment in G-secs with longer tenure, raising investment limits for NRI, OCIs and PROIs in listed equity, concessional forex swap for ECB by PSUs and subsidising hedging cost for FCNR (B) deposits.

Government Securities

  • FPIs, OCIs, and NRIs permitted to invest in 15, 30 and 40 year G-secs under FAR
  • Ease of investment in G-Secs for FPIs under the General Route
    • FPIs can now invest under the general route in government securities without these restrictions w.r.t. Short-term investments limits, Security-wise limit and Concentration limits:
      • Short-term investments limit: Investment in G-secs (maturity up to 1 year) were capped at 30% of the FPI’s total investment in each category.
      • Security-wise limit: Total of investments by FPI and those made through the Special Rupee Vostro Account Route in CG securities were capped at 30% of the security’s outstanding stock.
      • Concentration limit: Investment in G-secs by an FPI (with related FPIs) was capped at 15% and 10% of the prevailing investment limit of long-term and other FPIs respectively.
  • Merging of ‘general’ and ‘long-term’ investment limits by FPI in G-secs
    • The limits of investment by FPIs in G-Secs, previously bifurcated in ‘general’ and ‘long-term’ investments have now been merged for better flexibility. The erstwhile limits are provided in RBI Circular dated April 6, 2026, now clubbed as:
  • No capital gains tax for foreign investments in G-secs
    • An ordinance dated June 5, 2026 exempts interest earned as well as capital gains on transfer, sale or exchange of G-secs held by Foreign Institutional Investor or a Bank for International Settlements w.e.f. April 1, 2026.         

These measures are expected to increase returns for FPIs from Indian G-Secs by 15-20%[1].

Listed Equity Investments

  • Listed equity investment limits raised for NRI and OCI; Extended to all individual PROIs
    • Investments by NRIs and OCIs without SEBI registration as FPIs currently capped at 5% on individual and 10% on aggregate basis (can extend up to 24% with shareholder’s approval) now extended to all PROIs.
    • Press note by DPIIT and amendment in the FEM (NDI) Rules, 2019 expected to provide increased limits.

ECBs by PSU

  • Government to provide concessional forex swap for ECB by PSUs
    • The inherent currency risk of ECBs is hedged using forex swaps. The cost of forex swaps often wipes out the advantage of foreign borrowings. This relief expects an increase in ECBs from the usual $10–12 billion to $15 billion.[2] The operational framework is yet to be issued.

FCNR Deposits

  • Government to bear full hedging cost for fresh FCNR (B) deposits till September 30, 2026
    • Fresh 3 to 5 year Foreign Currency Non-Resident (Bank) Deposits made by NRIs and PIOs will benefit from this move. Banks will be pushed to pass on these benefits to depositors and may be able to raise up to $40 billion.[3]

Realization of export proceeds

  • Timeline for realisation of export proceeds restored back to 9 months from 15 months
    • On November 13, 2025, the FEM (Export of Goods and Services) Directions were amended to increase the timeline for realisation of export proceeds including those made by specified entities such as SEZ / status holder exporter / EOUs etc. from 9 to 15 months as an EODB measure. [See the brief highlights here.] The latest amendment aims to expedite export receipts.

[1] Source: https://www.thehindubusinessline.com/money-and-banking/govt-sops-to-boost-fpi-returns-from-gsec-by-15-20/article71065897.ece

[2] Source: https://www.business-standard.com/economy/news/psu-ecb-borrowings-may-cross-15-billion-on-rbi-s-concessional-swap-window-126060700598_1.html

[3] Source: https://economictimes.indiatimes.com/industry/banking/finance/banking/banks-to-be-told-to-step-up-fcnr-b-deposits/articleshow/131573654.cms?from=mdr#:~:text=Banks%20will%20now%20encourage%20more,attract%20significant%20foreign%20currency%20inflows. 

Refer to our other resources:

  1. Resource Centre on FEMA
  2. Resource Centre on ECB
  3. SOP for FDI approval rationalised for Border- Country Investment
  4. Open but Guarded Gates: Relaxations for Border-Country Investments

SOP for FDI approval rationalised for Border- Country Investment

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– Saloni Khant, Senior Executive | corplaw@vinodkothari.com

– Prescribes 60 days approval timeline for critical sectors, format for reporting LBC investments and more

After liberalising the receipt of FDI from countries sharing land-border with India (LBC Amendment) [read our article here], the DPIIT issued a revised SOP for applications seeking government approval to receive FDI w.e.f. May 4, 2026. The revised SOP brings significant changes with new reporting guidelines for LBC investments with non controlling stake under automatic route, a 60 days timeline for government approval for critical sectors etc. as discussed below.

Brief Highlights of the amendments

  • Reporting guidelines for LBC investments with non-controlling stake under automatic route [Para I of Annexure VII]
    • The LBC Amendment brought about a significant amendment that where a citizen or entity of LBC has non-controlling stake in an Indian investee entity, such FDI can be routed through the automatic route. Previously, such FDI was under the government approval route.
    • The Amendment provided that receipt of such FDI must be reported. The SOP provides the format and manner for such reporting.
    • The onus of reporting is on the Indian Investee entity or resident Indian transferor/transferee.
    • Schedule I of the SOP provides the format for reporting requiring extensive documents about the investor, Indian investee entity, other details including underlying agreements, details of downstream investments and a declaration by the reporting entity.
    • Manner of reporting
      • The form must be filed online through the FIF / NSWS[1] portal and no physical copies shall be required.
      • The reporting is to be done prior to the inward remittance of foreign capital.
      • In case of other transactions, this shall be done prior to execution of the relevant transactions, including issuance/transfer of capital instruments. 
  • Fixed 60 days timeline for government approval for FDI from LBC in critical sectors [Para II of Annexure VII]
    • In line with the proposals made in the CG press releasedated March 10, 2026, the SOP reduces the timelines for grant of approval from 12 weeks to 60 days for receipt of FDI from LBC with the following conditions:
      • The LBC investor investing individually or cumulatively, whether acting together or otherwise, holds up to 49% of the capital or voting rights of the Indian Investee entity.
      • The Indian Investee entity is engaged in manufacturing in specified sectors/activities [as detailed in the image]
      • The majority shareholding and control of the Investee entity is with a resident Indian citizen/ an entity owned and controlled by resident Indian citizen(s) at all times. 
  • Specific approval of the Ministry of External Affairs (MEA) for FDI from LBC [Para II.2]
    • Investments from LBC now specifically require comments/ approval from the MEA. Previously, all the proposals were sent to the MEA for information and it could send its comments to the concerned Ministry.

  • Stricter adherence to timeline for Ministry of Home Affairs [Para II.4]
    • Where the authorities do not provide comments within prescribed timelines, it is presumed that they have no comments. Previously, where MHA could not meet the timelines, it was required to intimate the relevant department of the revised timeframe. This liberty for MHA is now omitted providing for faster approvals.

  • Committee for expeditious approvals dissolved [Para I.4]
    • An inter-ministerial committee constituted to decide delayed FDI proposals and proposals escalated by relevant Ministry/Department for quick disposal has now been discontinued. Further, to simplify and expedite the approval process, the DPIIT has retained its previous instruction to the authorities to not replicate these kinds of structures.       

  • Closure of application gets more structural clarity [Para II.9]
    • Where the FDI applications are incomplete or the applicant has not responded to the relevant authority’s queries, the application may be closed with liberty to reapply.
    • Previously, in case the applicant is sent ‘repeated reminders’, the application may be closed.
    • The amended provisions require the Competent Authority to scrutinize the application within 1 week and issue clarifications, if any. The applicant may respond within 1 week failing which 2 reminders at a gap of 7 days shall be sent.
  • Other Changes
    • An entirely paperless approval system [Para I.3]
      • Previously, the concerned Ministry/ Department could call for physical copies of the original documents in case authenticity of any scanned documents is in doubt. This power has been removed.
    • Alignment of documents required for FDI proposal with LBC Amendment [Annexure-I]
      • The requirements of details related to the beneficial owner (BO) have been updated to enable identification of the BO pursuant to the amendment.

[1] Foreign Investment Facilitation / National Single Window System

Refer to our other resources:

  1. Open but Guarded Gates: Relaxations for Border-Country Investments
  2. RBI rationalises Guarantee regulations
  3. Resource Centre on FDI

Disaster, Distress and Resolution: Decoding RBI’s NBFC Relief Framework

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-Jeel Ranavat, Assistant Manager (jeel@vinodkothari.com)

Overview

A natural calamity does not just damage property or disrupt livelihoods — it can instantly push otherwise disciplined borrowers into financial stress. Loan repayments become difficult not because borrowers are unwilling to pay, but because businesses halt, incomes disappear, and economic activity comes to a standstill. Recognising this reality, the RBI has introduced a comprehensive new framework on relief measures in areas affected by natural calamities  (Natural Calamities Directions) for lenders that fundamentally changes how borrower distress arising from calamities is to be handled.

RBI has moved towards a more structured and time-bound relief mechanism — one that focuses not only on faster restructuring and borrower protection, but also on ensuring prudential discipline for lenders. From proactive resolution and protection against sudden NPA downgrades to stricter timelines, additional provisioning norms, and disaster-sensitive credit assessment.

Read more →

RBI Proposes Uniform Recovery Norms Across All Lenders

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Revised draft enables device locking facility and removes the restriction taking legal action as first  resort

Tejasvi Thakkar, Simrat Singh and Jeel Ranavat | finserv@vinodkothari.com

Introduction

Pursuant to the RBI’s stated intent in theStatement on Developmental and Regulatory Policies to harmonise the conduct of Regulated Entities in relation to loan recovery, comprehensive draft instructions were initially proposed on May 20, 2026 consolidating and rationalising the existing scattered provisions. The draft has been revised and RBI has proposed Draft – Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Amendment Directions, 2026 which introduces several changes to the proposed recovery and conduct framework for NBFCs.

[Changes proposed under the revised draft have been highlighted in red for the ease of reference]

The key changes proposed are introduction of the device locking facility with restrictions, widening of the scope of harsh practices, removing the earlier restriction against initiating legal action as a first resort etc.

The instructions are applicable to all NBFCs, excluding Mortgage Guarantee Companies, Core Investment Companies, NBFC-Account Aggregators, Standalone Primary Dealers, Non-Operating Financial Housing Companies, and NBFCs not having any customer interface. The key requirements of the proposed framework are summarised below:

Key highlights

Policy Requirement

REs shall formulate a separate policy on recovery of loan dues, engagement of recovery agents and taking possession of security, by its own employee or recovery agent. The policy shall, inter-alia, cover:

  • Eligibility and due diligence criteria for engagement of recovery agents.
  • Specified recovery activities permitted to be carried out.
  • Code of Conduct requirements.
  • Performance evaluation standards, inspection and control mechanism.
  • Procedures and penal actions in case of non-compliance by recovery agents.
  • Recovery procedures in case of demise of borrower.
  • Mechanism to identify borrowers facing repayment difficulties and provide guidance on recourse options
  • Incentive structures not inducing harsh recovery practices.
  • Enforcement and possession framework including legal action not to be adopted as the first resort.
  • Triggers for initiation of recovery process.
  • Graded actions as per an escalation matrix for loan recovery.
  • Provision for compensation to the borrowers / guarantors for loss arising on account of recovery related actions of the NBFC or the recovery agencies.

Issue: Whether this can be combined with the policy on Code of Conduct for DSAs/DMAs?

Our view: Since the present requirement specifically deals with recovery conduct, possession and enforcement of security interest, and engagement of recovery agents, the same should ideally be maintained as a separate policy. The DSA/DMA CoC policy deals largely with sourcing-stage conduct such as mis-selling and consequent compensation-related aspects. However, where there are overlapping requirements, NBFCs may structure the same within a broader conduct framework, divided into separate sections. However, it should remain distinct from the outsourcing policy.

Due diligence (DD) requirements

  1. Frame and implement a due diligence framework in line with the RBI Outsourcing Directions, 2025.
    1. RE to ensure that recovery agencies shall undertake due diligence and verification of their employees/representatives at the time of engagement and on a periodic basis. Policy to specify such periodicity and scope of verification.

Training Requirements

  1. Recovery agents shall mandatorily possess certification from the Indian Institute of Banking and Finance (IIBF) for debt recovery agents. (Aligned with the HFC Master Directions)
    1. Existing agents without certification shall obtain the same within one year from issuance of directions

Code of Conduct for recovery Agents

  1. REs shall put in place a CoC for recovery agents and employees engaged in recovery and obtain undertakings for adherence.
    1. The CoC shall include, inter alia:
      1. Fair and respectful treatment of borrowers.
      2. Sharing only limited borrower information necessary for recovery and preventing misuse.
      3. Mandatory documents to be carried (ID card, copy of recovery letter etc)
      4. Permissible hours of contact
      5. Place of contact rules
      6. Restriction on contacting third parties
      7. Detailed prohibition of harsh practices
      8. Borrower information confidentiality
      9. No recovery action where grievance is pending
      • Recording of recovery calls with due borrower intimation.

Though the earlier draft proposed that recovery action cannot be taken if the grievance is found to be frivolous, however, the revised draft specifies that recovery cases cannot be referred to recovery employees or agencies while a borrower grievance relating to loan dues or recovery remains pending with the NBFC.

While the intent of the proposal is to strengthen borrower protection, it may make recoveries more difficult for lenders, as any borrower grievance can pause recovery action regardless of whether the complaint has merit. In our view, this could be misused by borrowers with malicious intent, by raising complaints primarily to delay or stall recovery proceedings.

Issue: Whether the CoC prescribed earlier under HFC Directions stands subsumed?

Our view: Yes. The earlier HFC provisions largely stand harmonised and subsumed within the present draft framework, except for certain differences which have been captured in the Annexure below.

Recovery agents shall be required to carry recovery notice, identity card and authorisation letter which shall include the telephone number of the / recovery agency and the grievance redressal officer appointed by the NBFC, and shall adhere to the following conduct requirements:

  • Interact only with the borrower / guarantor and not approach relatives or other contacts; maintain civil behavior;
  • Contact / visit borrowers only between 08:00 hours and 19:00 hours;
  • Honour borrower’s request to avoid calls / visits at particular times in normal circumstances;
  • Contact borrowers ordinarily at the place of their choice, failing which at residence, and thereafter at place of business / occupation. In the absence of any specific choice or if the borrower / guarantor fails to appear at the chosen place on two or more successive occasions, the employee / recovery agent may contact the borrower / guarantor at the place of his / her residence / occupation.
  • Avoid calls / visits during inappropriate occasions such as bereavement, calamities, marriage functions, festivals, etc.
  • In case of microfinance loans, undertake recovery at a mutually decided designated place, with field visits permitted only upon repeated non-appearance.
  • Ensure only duly authorised representatives visit borrower’s premises for recovery activities.
  • Ensure any written communication to borrowers has RE’s approval.
  • Promptly issue proper acknowledgement / receipt for collections made.
  • Refrain from harsh practices, including use of abusive/minatory  language,
  • use of social media for posting video / audio recordings or personal details of the borrower / guarantor;
  • sending inappropriate messages either on mobile or through social media;
  • excessive or anonymous calls, intimidation or harassment, threats of violence, misleading representations, or intrusion into borrower’s privacy,
  • making false or misleading representations to the borrower / guarantor, especially about the extent of the debt or the consequences of nonrepayment

    The revisions to the draft has widened the scope of “harsh practices” to explicitly include misuse of social media for recovery purposes, including disclosure of borrower information and sending abusive, threatening, or inappropriate communications through mobile or digital platforms.

Grievance redressal mechanism

  • Establish a dedicated recovery-related grievance redressal mechanism.
  • Provide complete details of the Grievance Redressal Officer and the mechanism in all recovery communications and loan agreements.
  • Define criteria for identification and closure of frivolous complaints with appropriate internal oversight.
  • REs should address issues including for issues relating to delays or difficulties in unlocking mobile device functionalities.

Responsibilities of REs

REs shall:

  • Prominently display an up-to-date list of empanelled recovery agents on all customer interface channels. Details to be provided
    • names of agents,
    • details of individuals engaged
    • period of engagement.
    • Type of recovery agent (corporate / individual),
    • Correspondence address,
    • Purpose of engagement (recovery / possession of security),
    • Assigned geographical areas,
  • The revised draft has introduced a timeline for REs to update the list within seven calendar days of any modification to the list.
  • In case of termination of agreement with the recovery agency,  REs are required to  inform the borrowers immediately.
  • Maintain records of recovery calls, including timing, frequency, and call recordings, for at least 6 months or until disposal of sub judice matters.
  • Inform the borrowers/guarantors that calls are being recorded.
  • At the time of forwarding cases for recovery,
    • In case a registered mobile number or email is available, inform borrowers atleast one day before the first recovery visit about the details of the recovery agent through SMS/Email.
    • In case digital details of the borrower  are  unavailable, inform borrowers atleast 3 days prior through physical notice.

Possession of mortgaged / hypothecated assets

Loan agreements shall contain a legally enforceable possession clause, clearly disclosed at the time of execution. The agreement shall, inter alia, specify:

  • Notice period and circumstances for waiver;
  • Procedure for taking possession of security;
  • Final opportunity to the borrower for repayment prior to sale/auction;
  • Procedure for restoration of possession;
  • Transparent process for sale or auction of the secured asset.

Periodic review, monitoring and control

REs shall put in place a management structure to monitor and control the activities of recovery agents and ensure that such agents refrain from actions that could harm the RE’s integrity and reputation. Accordingly, the RE should ensure:

  • Appropriate monitoring and conduct provisions shall be incorporated in agreements with recovery agents.
  • Remain fully responsible for the actions of recovery agents.
  • Undertake periodic review of recovery mechanisms to learn from experience and effect improvements.

Technology-Based Recovery Restrictions

The revised draft also proposes that the REs are restricted from using technology-based mechanisms (Remote Device Locking) to remotely restrict or disable functionalities of a borrower’s mobile device as a recovery tool, except in cases where the loan itself was granted for financing that specific device.

This can be done subject to certain conditions:

  1.  Loan agreement must expressly authorise such restrictions in clear and unambiguous terms.
  2. Trigger events for recovery actions must be specifically defined and disclosed upfront.
  3. A structured notice mechanism must be provided before any restriction is imposed.
    1. Notice of  atleast 21 days to be issued to borrower after the loan becomes 60 DPD
    1. After expiry of 21 days notice atleast another 7 days of time to the borrower to cure the default.

The default is 90DPD and the borrower has not curated the default irrespective of the notices Restrictions should follow a graduated, step-by-step escalation process.

  • REs  shall not restrict or disable essential device functionalities including internet access, incoming calls, emergency SOS, or emergency government/public safety notifications.
  • NBFC must reverse any restriction within 1 hour of default being cured.
  • NBFC must pay ₹250 per hour compensation for wrongful restriction or delayed reversal.
  • Device restriction mechanism must be uninstalled after full loan repayment.
  • Borrower retains the right to prepay the loan anytime (partial or full).
  • NBFC must maintain a strong grievance redressal system for unlocking-related issues.
  • NBFC is strictly prohibited from accessing, using, or retaining borrower device data for        recovery or any purpose.
  • NBFC is not allowed to access, use or obtain or retain the data in the phone for recovery in any circumstances

This means the lender cannot view personal files, contacts, messages, photos, location data, or any other information stored on the device while enforcing recovery measures.

Please refer to our detailed write -up on this–Remote Device Locking: RBI proposes highly guarded path

For Housing Finance Companies:

Most of the proposed requirements are not entirely new in substance for HFCs, as they were already reflected in the Guidelines for Engaging Recovery Agents under paragraph 170 of the RBI HFC Directions, 2025. The proposal now is to delete those HFC-specific guidelines and require HFCs to comply with the proposed Directions.

However, while the underlying principles remain largely consistent, the proposed Directions significantly strengthen and formalise the recovery framework. The approach shifts from principle-based guidance to a more structured, prescriptive, and compliance-oriented regime. The key changes are as follows:

  1. Mandatory written recovery policy:Under the HFC Directions, compliance was required with paragraph 170, but there was no express requirement to frame a consolidated written policy governing recovery of loans, engagement of recovery agents, and repossession of security. The proposed Directions now mandate a formal, documented recovery policy. Such policy must specifically cover eligibility criteria for engagement of agents, due diligence standards, performance evaluation parameters, inspection and audit mechanisms, and penal actions for non-adherence. This marks a shift from guideline-based adherence to a structured governance framework.
  2. Borrower distress identification mechanism: The HFC Directions required utilisation of credit counsellors in cases where a borrower was considered to “deserve sympathetic consideration,” which was discretionary and reactive in nature. The requirement of early stage borrower distress identification has been removed from the revised draft which indicates a shift from a proactive, structured borrower support system to a more reactive, institution-led approach based on observed default or non-payment events.
  3. Explicit data governance controls:While the HFC Directions required training of recovery agents on respecting customer privacy, the proposed draft goes further by mandating that only limited borrower information be shared with recovery agents and that adequate safeguards be put in place to prevent misuse or unauthorised transfer of customer data. This introduces clearer data governance and accountability obligations.
  4. Restriction on initiating legal action as first resort: The HFC Directions did not prescribe any sequencing rule regarding enforcement remedies. The earlier draft proposed that legal action for recovery or enforcement of security shall not be initiated as a first resort, thereby imposing a structured progression in recovery measures.

However, the revised draft provides for removal of this provision and suggests a relaxation of the earlier restriction against initiating legal action as a first resort for recovery.

This may provide lenders greater flexibility in choosing recovery measures and pursuing legal remedies at an appropriate stage.

Conclusion

Recovery is as vital to lending as disbursement, if not more. Credit often begins with a courteous engagement by the lender, but too often, the standards of professionalism seen at the time of sanction weaken at the stage of enforcement. The right to recover is unquestionable; harassment is not. The proposed Directions seek to correct this imbalance by requiring lenders to uphold the same standards of fairness, transparency and discipline during recovery as at the time of origination.