A S BANKA ADVISORS

On 6 August 2026 the Reserve Bank of India issued nine circulars on the same day, each amending the Responsible Business Conduct framework for a different class of lender. Together they replace scattered recovery instructions with a single conduct standard covering commercial banks, small finance banks, co-operative banks, All India Financial Institutions, NBFCs and housing finance companies. They come into effect on 1 January 2027.

Most coverage has read this as consumer news. If your company carries a term loan, a working capital facility, equipment finance or venture debt, it is not. You now have five months in which your lender’s future obligations are already published and your own facility documents are still unamended.

What actually changed

The commercial bank circular, RBI/2026-2027/223, is issued under Sections 21 and 35A of the Banking Regulation Act, 1949. It deletes paragraphs 408 to 416 and 442 to 454 of the Directions and inserts a new Section L running from paragraph 454A to 454AB. The housing finance circular, issued under Section 30A of the National Housing Bank Act, 1987, requires HFCs to comply with the corresponding NBFC paragraphs.

That last move is the structural story. NBFCs and housing finance companies are now held to the same recovery standard as banks. For a founder who borrows from an NBFC because the bank said no, the conduct floor is no longer lower.

Three provisions a borrowing business should know

1. The definition ignores what the contract calls them

Paragraph 4(24A) defines a recovery agency as an entity or individual, other than the lender’s own employees, engaged “irrespective of the contractual designation or nomenclature used for such engagement” to assist in recovery, including taking possession of security. RBI adds an explicit illustration: a Business Correspondent doing recovery work is a recovery agency. Collections consultant, field verification partner, channel associate. The label no longer decides the question.

2. Distress now has to be engaged with, on record

Every covered lender must adopt a board level collection and recovery policy that includes a structured framework for financial distress, with documented pre-escalation engagement and guidance on resolution options. This is the provision most worth understanding if your business is heading into a difficult quarter. From January 2027 a borrower can ask what pre-escalation engagement was undertaken before the file went to an agency. In a restructuring conversation that question is considerably more useful than a general complaint about pressure.

3. Device locking is prohibited by default, and the timing is stricter than reported

Paragraph 454S starts from a prohibition on any technology based mechanism that restricts a borrower’s phone, tablet or laptop as a recovery tool. The only exception is where that device was financed by that loan, and even then four conditions apply cumulatively, including an express contractual clause and certification by the device OEM or operating system platform.

The timing deserves care, because several summaries state only one threshold. Paragraph 454S(3) sets three. No restriction of any kind before the loan is 30 days past due. The full set of restrictions only after 60 days past due. Outgoing calls not restricted before 60 days past due. Where a restriction is wrongly applied, or reversal is delayed for reasons attributable to the lender, paragraph 454T(6) requires compensation at Rs 250 per hour until remedied, capped at the loan amount disbursed. Reversal itself must happen within one hour of dues being realised.

The part that turns on a document you signed years ago

Where a lender relies on a clause permitting it to take possession of security, the Directions require that the clause be legally valid and that it was clearly brought to the borrower’s notice at the time of execution. The agreement must also set out the notice period, when notice can be waived, the procedure for taking possession, a final chance to repay before sale or auction, and the procedure for return of possession.

None of this displaces statutory enforcement rights under SARFAESI or similar law. The Directions govern conduct, not entitlement. But the conduct standard runs partly through your own facility documents, and those were drafted before any of this existed. Reading them in August 2026 costs materially less than reading them during a recovery action in 2027.

If you are on the lending side

For an NBFC, HFC or lending fintech this is an implementation project, not a circular to file: board approved policy including the compensation provision, agency contracts reissued with the code of conduct undertaking, a published list of empanelled agencies updated within seven calendar days of any change, call recording with six month retention, Indian Institute of Banking and Finance certification across the agent base, and incentive structures reviewed so they do not induce harsh practices. If any part of your collections stack locks devices outside device finance, it needs to be switched off rather than documented.

What to do in the next five months

1. Pull every facility agreement and read the possession clause and any technology restriction clause.
2. For device or equipment finance, check whether the agreement expressly and unambiguously permits restriction and sets out the procedure. If it does not, the exception does not open.
3. If the business is under stress, document your own engagement with the lender now. It mirrors the pre-escalation record the lender will have to keep.
4. If you lend, work backwards from 1 January 2027, starting with the agency contracts, which take longest.

Download the full carousel PDF covering all nine circulars, the eight deemed harsh practices, the device locking conditions and the implementation timeline.

Need help navigating this? If your business is carrying stressed borrowings, or you want your facility documents reviewed against what the recovery framework will require from January 2027, book a quick call: https://calendly.com/asbanka-info/30min

CA Adityavikram Banka, Founder, A S Banka Advisors Private Limited.