Your Lender Cannot Harass You: RBI's Fair Practices Code Bans Odd-Hour Calls and Muscle Power in Loan Recovery

Every default begins the same way. You miss the first equated monthly instalment, the account is flagged, and within days a recovery agent is calling your phone — sometimes before sunrise, sometimes after dinner, occasionally at your workplace in front of colleagues. Most borrowers assume this badgering is simply the price of falling behind on a loan. It is not. The Reserve Bank of India's Master Circular on the Fair Practices Code, numbered RBI/2015-16/16 (DNBR (PD) CC.No.054/03.10.119/2015-16), draws a firm line that has stood since the 2015-16 supervisory year: a lender may pursue its money, but it may not pursue your dignity.

This matters more in 2026 than it did a decade ago. With the RBI repo rate held at 5.25% as of the Monetary Policy Committee decision of 8 April 2026, floating-rate borrowers have seen instalments reset repeatedly, and even disciplined households have slipped into arrears during the easing cycle that cut 125 basis points off the policy rate through 2025. When that happens, the law gives you specific, enforceable protections. This guide sets out the statutory position, the step-by-step procedure to stop harassment, the borrower defences available under the secured-loan recovery framework, and the judicial line that backs every word of it.

The Statutory Position

The regulatory anchor is the RBI Master Circular RBI/2015-16/16 on the Fair Practices Code for Non-Banking Financial Companies, published on the Reserve Bank's own website at rbi.org.in. In its own words, the Code directs that lenders "should not resort to undue harassment viz. persistently bothering the borrowers at odd hours" or "use of muscle power for recovery of loans." The circular goes further for NBFC-Microfinance Institutions: in sensitive recovery situations, generally only the lender's own trained employees, and not outsourced recovery agents, should be deployed, and all collection staff must be adequately trained to deal with customers in an appropriate manner. These are not aspirational guidelines; under the supervisory framework, breach of the Code invites RBI action against the regulated entity.

The Fair Practices Code does not sit alone. It operates against the backdrop of three recovery statutes that every borrower should know. The first is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — the SARFAESI Act — which lets a secured creditor enforce security without first going to court. The second is the Recovery of Debts and Bankruptcy Act, 1993 (the RDDB Act), which created the Debt Recovery Tribunals. The third is the Insolvency and Bankruptcy Code, 2016, used where the borrower is a company or where insolvency, rather than security enforcement, is the chosen route.

Crucially, none of these statutes authorises self-help by intimidation. SARFAESI prescribes a defined sequence: under Section 13(2) the secured creditor must first issue a written demand notice giving the borrower 60 days to clear the dues; only on default of that notice may the creditor take possession or other measures under Section 13(4). The full text of the 2002 Act is available on the Government of India statute portal at indiacode.nic.in. The point for a harassed borrower is simple: recovery is a statutory process with notices, timelines and tribunals — not a licence for phone calls at midnight.

Procedure Step by Step

If a recovery agent or lender has crossed the line drawn by RBI/2015-16/16, the borrower has a structured escalation path. Each rung has its own forum and timeline, and skipping a rung usually weakens your position. Follow them in order.

1. Document everything (Day 1 onwards). Note the date, time and number of every call, record voicemails, and keep screenshots of messages. Under the Fair Practices Code's "odd hours" prohibition, the timing of calls is itself evidence, so a contemporaneous log carries weight. Aim for a record covering at least 7 to 14 days of contact.
2. Write to the lender's grievance redressal officer. Every RBI-regulated lender must publish a Fair Practices Code and a grievance mechanism. Send a written complaint citing RBI/2015-16/16 by name and demand a response. The lender gets up to 30 days to resolve it.
3. Escalate to the RBI Ombudsman. If the lender does not reply within 30 days, or the reply is unsatisfactory, file a complaint with the Reserve Bank under the Reserve Bank - Integrated Ombudsman Scheme, 2021 (in force since 12 November 2021) through the RBI's online portal. There is no fee.
4. Lodge a police complaint where there is a threat. Persistent intimidation, abuse or any "use of muscle power" can amount to criminal intimidation and trespass. A First Information Report or a written complaint to the local police station creates an independent record.
5. Approach the Debt Recovery Tribunal or High Court. If the lender has begun enforcement, the borrower may challenge the action before the DRT under Section 17 of the SARFAESI Act, 2002, within 45 days of the measure complained of. High Courts also entertain writ petitions where fundamental rights or gross procedural breach are alleged.

Borrower Defences Available

A borrower who reaches the tribunal is not powerless. The principal remedy is a securitisation application under Section 17 of the SARFAESI Act, 2002, which lets the borrower challenge any measure taken by the secured creditor under Section 13(4) — including possession. The application must reach the DRT within 45 days of the action complained of. Contrary to a common myth, there is no mandatory pre-deposit to merely file a Section 17 application before the DRT; the tribunal may, however, direct a deposit as a condition while granting interim relief, so a borrower should be prepared for that possibility.

The grounds of defence are largely procedural, and procedure is where lenders most often slip. Common, sustainable grounds include: failure to serve a valid Section 13(2) demand notice giving the full 60 days; classification of the account as a non-performing asset in breach of RBI norms; defects in the possession notice or its publication; and recovery conduct that breaches the Fair Practices Code under RBI/2015-16/16, such as taking possession by force rather than through the prescribed process. Each of these can vitiate the enforcement action.

Where the borrower wishes to resolve rather than litigate, a One Time Settlement (OTS) remains the most pragmatic exit. Lenders operate board-approved OTS or compromise policies, and a negotiated settlement typically discharges the collateral once the agreed sum is paid. Before negotiating, a borrower should model the cash impact: our loan foreclosure calculator helps estimate the cost of clearing a loan early, while the debt consolidation calculator shows whether refinancing several liabilities into one is cheaper than a lump-sum settlement. Always insist that any OTS is reduced to writing and that a no-dues certificate is issued on payment.

Two practical safeguards deserve emphasis. First, a borrower retains the right of redemption — the right to clear the entire outstanding and recover the asset — until the secured asset is actually sold or transferred, a protection the SARFAESI framework expressly preserves. Second, your credit record is not beyond repair: once dues are settled, the lender must update the bureaus, and your credit-score can recover over the following 12 to 24 months of disciplined repayment.

A final word on tactics. The single most common mistake borrowers make is silence — ignoring the Section 13(2) notice and hoping the problem dissolves. It does not. The 60-day clock under Section 13(2) runs whether or not you respond, and once the Section 13(4) measure is taken, the 45-day Section 17 limitation starts. A borrower who replies to the demand notice in writing, raises any dispute on the outstanding figure, and proposes a repayment or settlement plan preserves every option: a Section 17 challenge, an OTS, or a negotiated restructuring. The Fair Practices Code under RBI/2015-16/16 obliges the lender to deal with you fairly, but the statutory clocks reward those who engage early and on paper.

Recent Tribunal/HC Position

The judiciary settled the principle behind the Fair Practices Code well before the RBI codified it. The leading authority is the Supreme Court's decision in ICICI Bank Ltd. v. Prakash Kaur (2007), where the Court strongly deprecated the practice of banks engaging musclemen and recovery agents to seize assets and recover loans by force. The Court held that India is governed by the rule of law, and that recovery of a loan or repossession of security can be effected only through legal means and not by hiring goons to take the law into the lender's own hands. The judgement and its line of authority are available on the case-law database at indiankanoon.org.

That judicial position fed directly into regulation. The RBI's Fair Practices Code in RBI/2015-16/16 translates the Court's "rule of law" reasoning into supervisory obligations — the express bar on odd-hour harassment and on muscle power is, in substance, the Prakash Kaur principle written into the conduct rules that bind every NBFC. Debt Recovery Tribunals and High Courts have since repeatedly set aside possession actions where the secured creditor short-circuited the Section 13(2) sixty-day notice or resorted to forcible possession, treating compliance with the statutory procedure as mandatory rather than directory.

The combined message from the Supreme Court in 2007 and the RBI's 2015-16 Code is consistent and durable: a lender's right to recover is real, but it is a right exercised through notices, the DRT and, where applicable, the High Court — never through fear. A borrower who knows the Section 13(2) timeline of 60 days and the Section 17 limitation of 45 days is already far better protected than one who simply stops answering the phone.

FAQ

Can a recovery agent legally call me at any time of day?

No. The RBI Master Circular RBI/2015-16/16 expressly prohibits "persistently bothering the borrowers at odd hours." Reminder calls during reasonable hours are permitted, but repeated calls late at night or very early in the morning breach the Fair Practices Code and can be reported first to the lender and then, after 30 days, to the RBI Ombudsman under the Integrated Ombudsman Scheme, 2021.

What can I do if a recovery agent threatens or uses force?

The Fair Practices Code in RBI/2015-16/16 bars "use of muscle power for recovery of loans." Any threat or force can also be a criminal offence, so lodge a police complaint or FIR immediately and keep evidence. The Supreme Court in ICICI Bank Ltd. v. Prakash Kaur (2007) confirmed that loans can be recovered only through legal means, not by hiring musclemen.

How long does the bank have to give me before taking my property?

Under Section 13(2) of the SARFAESI Act, 2002, a secured creditor must serve a written demand notice giving you 60 days to clear the dues. Only if you fail to pay within that period can the lender proceed to possession or other measures under Section 13(4). A notice that does not honour the full 60 days is defective.

Can I challenge the bank's recovery action, and where?

Yes. Section 17 of the SARFAESI Act, 2002 lets you file a securitisation application before the Debt Recovery Tribunal within 45 days of the Section 13(4) measure. There is no mandatory pre-deposit merely to file, though the tribunal may direct a deposit while granting interim relief. High Courts can also be approached by writ in cases of gross illegality.

Is a One Time Settlement a good idea?

A One Time Settlement can be the most pragmatic exit when full repayment is not feasible, because it discharges the collateral on payment of the agreed sum. Model the numbers first using our loan foreclosure calculator, insist the terms are in writing, and obtain a no-dues certificate. Note that a settled account is recorded by credit bureaus, so your score may take 12 to 24 months to recover.

Do these protections apply to NBFC and microfinance loans too?

Yes. RBI/2015-16/16 is the Fair Practices Code for NBFCs specifically, and it adds that for NBFC-Microfinance Institutions, sensitive recovery should generally use the lender's own trained employees rather than outsourced recovery agents. All collection staff, whatever the lender, must be adequately trained to deal with customers appropriately.

Can I still save my asset after possession?

In many cases, yes. The SARFAESI framework preserves the borrower's right of redemption — the right to pay the full outstanding and recover the secured asset — up until the asset is actually sold or transferred. Acting within the Section 17 window of 45 days and engaging early through the DRT gives you the best chance of preserving the property.