Loan Default : The RBI's New Plan to Make You Pay Your Phone Bill on Time

Buying a new smartphone on easy EMIs has become second nature for many in India. But what happens when you miss a payment? A new proposal being considered by the Reserve Bank of India (RBI) could soon give lenders the power to remotely lock the phones of those who default on their loans.

This move is a significant step aimed at tackling the growing issue of defaults on small-ticket loans, a segment that has seen a boom in recent years. With over a third of consumer electronics in the country being purchased on credit, the number of small loans has surged. However, loans under ₹1 lakh have also shown a higher risk of default.

The idea isn't entirely new. Lenders have previously used apps to disable devices when payments were missed, a practice the RBI had asked them to stop last year Now, after consultations with financial institutions, the central bank is looking to formalize this process by updating its Fair Practices Code.

There will be some crucial guardrails in place to protect consumers. Lenders will be required to get clear and prior consent from the borrower before they can enable this locking feature. A critical point is that these new rules will strictly prohibit lenders from accessing any personal data on the phone; the lock would simply render the device unusable.

"The RBI wants to ensure that lenders have the power to recover small-ticket loans, and at the same time ensure that customers' data is protected," one source familiar with the matter stated.

For finance companies like Bajaj Finance, DMI Finance, and Cholamandalam Finance, this could be a game-changer. It would likely improve their loan recovery rates and might even encourage them to lend to customers with weaker credit histories.

However, the proposal has sparked a debate about consumer rights. For many, a smartphone is no longer a luxury but an essential tool for daily life—for work, education, and accessing financial services. Critics and consumer advocacy groups worry that this move could have serious consequences.Srikanth L., founder of the advocacy group CashlessConsumer, warned that this "practice weaponizes access to essential technology to enforce behavioural compliance.

The potential new guidelines highlight a delicate balancing act for the RBI: protecting lenders from rising bad loans while also safeguarding the rights of consumers in an increasingly digital India.

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