The Reserve Bank of India (RBI) is reportedly exploring changes to its Fair Practices Code that could permit lenders to remotely lock mobile phones purchased on credit if borrowers fail to repay their loans. The proposal aims to strengthen recovery mechanisms for small-ticket consumer loans while balancing consumer protection concerns.

Under the contemplated framework, lenders would be required to obtain explicit prior consent from borrowers before initiating any phone-locking measures. Additionally, safeguards around the protection of personal data and privacy are expected to be incorporated, addressing potential concerns regarding misuse or overreach. The approach seeks to ensure that enforcement actions are fair, transparent, and legally compliant.

Industry observers note that small-ticket consumer loans, particularly those for smartphones and electronics, have been witnessing higher default rates as credit penetration increases. Providing lenders with a legal mechanism to secure collateral could improve credit discipline and reduce non-performing assets in this segment. At the same time, RBI aims to avoid measures that could be perceived as overly punitive or infringing on consumer rights.

The central bank is likely to consult stakeholders, including lenders, consumer rights groups, and fintech companies, before finalizing any updates. Experts suggest that a well-designed framework could benefit both lenders and borrowers by promoting responsible lending and borrowing, while ensuring that consumers remain protected under clearly defined rules.

Digital lenders, which have grown rapidly in India, may particularly benefit from such regulations, as they often deal with high volumes of small-value loans. Clear guidelines on phone-locking procedures, consent protocols, and dispute resolution mechanisms would help maintain trust in digital lending ecosystems.

If implemented, this measure could serve as a precedent for balancing credit enforcement and consumer rights in emerging financial markets. RBI’s cautious approach indicates its intent to enhance credit discipline while safeguarding borrower interests, supporting the sustainable growth of small-ticket lending in India.