India’s central bank is preparing a policy that will allow lenders to remotely lock smartphones purchased on credit if borrowers fail to repay their loans. The move comes as part of the Reserve Bank of India’s (RBI) plan to strengthen loan recovery mechanisms in the rapidly growing consumer durable financing market, where over one-third of electronics, including phones, are bought on credit.
Balancing Recovery With Consumer Protection
The RBI had previously halted phone-locking practices by lenders due to privacy and misuse concerns. Now, after consultations, it is set to update its Fair Practices Code to include strict guidelines. Lenders will need prior consent from borrowers before activating locking features and will be prohibited from accessing any personal data on locked devices.
“The RBI wants to ensure lenders can recover small-ticket loans while safeguarding consumer data,” a source familiar with the policy said.
Boon for Lenders, Potential Blow for Consumers
If approved, the new rule could significantly benefit major non-bank lenders such as Bajaj Finance, DMI Finance, and Cholamandalam Finance, which dominate the small-ticket consumer finance market. Loans under ₹1 lakh are considered the most vulnerable to default, with high delinquency rates, according to CRIF Highmark.
However, consumer rights groups warn of serious risks. “This practice weaponizes access to essential technology to enforce compliance, potentially locking users out of livelihoods, education, and financial services,” said Srikanth L., founder of advocacy group CashlessConsumer.
A Growing Market and Rising Risk
India’s mobile market is massive — with over 1.16 billion connections — and small-ticket personal loans now account for nearly one-third of all non-food credit. As loans for electronic goods surge, ensuring repayment has become critical for financial stability.
Yet, critics argue that making smartphones — essential tools for communication, learning, and earning — contingent on loan repayment crosses ethical lines. They call for clear consent protocols, grievance redressal mechanisms, and strict oversight to prevent abuse.
The Road Ahead
The RBI’s final guidelines are expected in the coming months. While the move could improve loan recovery rates and lending confidence, it also raises pressing questions about consumer rights, digital access, and financial fairness in one of the world’s fastest-growing credit markets.
