If you are planning to buy a smartphone on EMI or through a mobile loan, this update from the Reserve Bank of India (RBI) is important for you.
The RBI has released new draft rules related to mobile phone loan defaults.
According to the proposal, banks and finance companies may be allowed to restrict certain features of a mobile phone if the borrower fails to repay the loan on time.
These new rules are expected to come into effect from October 1, 2026.
In recent years, many fintech companies and digital lenders were already using technical systems to block smartphones in case of non-payment.
Now, the RBI wants to regulate this process with proper rules and borrower protection.
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When Can Banks Restrict Your Phone?
The RBI has clearly stated that phone restrictions can only be applied if the loan was specifically taken to purchase that mobile device.
Banks and lenders will also have to follow strict conditions before taking any action.
The loan agreement must clearly mention:
That phone restrictions are possible
In which situations action can be taken
How much time the borrower will get to repay
What complaint options are available to customers
According to the draft rules, lenders can start the restriction process only if the loan account remains overdue for more than 90 days.
Borrowers Will Get Multiple Warnings First
The RBI has also introduced safeguards to prevent sudden blocking of devices.
If a borrower misses payments, banks must first send a notice after the account remains overdue for more than 60 days. Customers will then get at least 21 days to clear the dues.
Before any restriction is applied, lenders must send a second notice giving an additional 7 days to the borrower.
This means banks cannot immediately block or limit a phone without prior communication.
Essential Phone Services Cannot Be Blocked
One of the biggest reliefs for customers is that lenders will not be allowed to completely shut down important phone services.
According to the RBI draft:
Emergency SOS services cannot be blocked
Incoming calls must remain active
Government and public safety alerts cannot be stopped
Basic internet-related essential access should remain available
The RBI has also asked lenders to follow a gradual approach instead of completely disabling the device immediately.
Compensation for Delay in Restoring Services
The draft rules also protect borrowers after repayment.
Once the pending loan amount is cleared, lenders must restore phone functionality within one hour.
If there is any unnecessary delay or accidental blocking, the borrower will receive compensation of ₹250 per hour until the issue is resolved.
The RBI has further stated that after full repayment of the loan, all software used to control or restrict the device must be removed immediately.
RBI Wants Fairness in Digital Lending
Through these new rules, the RBI aims to create a balance between lenders’ recovery rights and customer protection.
The central bank wants to ensure that borrowers are treated fairly while also stopping misuse of technology-based recovery methods by digital lenders and finance companies.