RBI May Allow Lenders to Lock Phones of Loan Defaulters

The Reserve Bank of India (RBI) is considering giving lenders the power to remotely lock mobile phones bought on credit if the borrower fails to repay the loan. The move is aimed at reducing bad loans, but it has raised serious concerns about consumer rights; Economic Times reported.

Over one-third of phones and other consumer electronics in India are purchased on small loans. With more than 1.16 billion mobile connections, phones are deeply linked to daily life, from education and work to financial services.

Until last year, some lenders were already using special apps to lock devices when customers defaulted. The RBI had stopped the practice but is now planning to bring it back with stricter rules.

According to sources, the new guidelines will be included in the RBI’s updated Fair Practices Code. Lenders will need to get the borrower’s consent in advance, and they will not be allowed to access personal data on the phone.

“This step will help lenders recover small loans while ensuring data protection,” one source explained.

If approved, the measure could benefit major finance companies such as Bajaj Finance, DMI Finance, and Cholamandalam Finance, which give out many loans for consumer goods. Loans below ₹1,00,000 are at the highest risk of default, especially those from non-bank lenders, who provide most consumer durable loans.

However, consumer rights groups are worried. Srikanth L., founder of the advocacy group CashlessConsumer, warned “This practice uses essential technology as a weapon. It could block people from education, jobs, and basic services until they repay, which is unfair.”

The RBI has not yet confirmed the proposal, but an official update is expected in the coming months.