MUMBAI: If the Reserve Bank goes ahead and allows banks to digitally lock your phone-if it was bought on EMIs but you are not paying back on time--you are in trouble. The regulator has said it is seriously examining the proposal from banks to allow such measures to recovery small ticket loans.
At present, banks can seize a vehicle or a house if the loan is in default for more than a month.
In 2024, more than one-third of consumer electronics, including phones, were reportedly bought on small-ticket loans in the country.
If permitted, the initiative is aimed at curbing bad assets, though it involves balancing customer data privacy with lenders' interests. If allowed a phone security platform that allows lenders to remotely lock mobile phones would have to be developed and can go a long way in curbing bad assets in this area of credit demand.
Responding to a media question on whether a bank can remotely lock a mobile phone if that was purchased on EMIs and if the borrower is in defaults, governor Sanjay Malhotra said the Reserve Bank is going through the proposal that banks have towards this end and are analyzing pros and cons of the facility. Btu also have to keep consumers’ data privacy and interest in mind but without hampering the lenders' interests.
To do so, the RBI will have to revise its fair practices code to allow banks and non-banking financial companies to remotely lock mobile phones that were purchased on credit via EMIs but are in default.
“Such a proposal is currently under discussion, and we are getting views both for and against such a move,” Malhotra said during a post monetary-policy presser here Wednesday. “We are taking those views on record.”
M Rajeshwar Rao, the senior-most deputy governor who is in-charge of banking regulation, chipped in saying, "the issue is under examination as governor has pointed out. There are pros and cons on both sides, in terms of balancing the customer rights and requirements of data privacy, and also the creditor's requirements."
“Our effort is to ensure that a consumer's rights are maintained, in terms of data privacy etc. The consumer's interest is paramount, while we consider the issues faced by banks,” said Rao who retires on October 8 after being a career central banker for nearly four decades.
Under the proposed rules, the digitally locking a phone would be allowed only after obtaining explicit prior consent from the borrower at the time of the loan agreement. The lock must not allow the lender to access personal data or tamper with it.
The mechanism would act as a sort of enforcement tool or collateral against small-ticket consumer loans, especially in the consumer electronics space.
The demand from lenders have after the number of defaults in small-value consumer loans has been rising, which poses a risk for lenders. More often than not, these are for high-end mobile phones.
According to lenders the ability to lock a financed smartphone is an important recovery tool. Already, a vehicle or house can be seized if their EMIs are not paid on time. Lenders want this practice to extend to smartphones.
But the very threat can make people more prudent in their financial dealing as locking a phone is a serious step as people rely on them for communication, work, education, financial transactions, health apps, emergencies etc. And there are also critics who say this could be too punitive, especially if small delays or disputes trigger lockouts.
Moreover, data privacy is a fundamental right. Any remote control over a device—even if only locking—can raise questions about whether it violates autonomy or privacy rights.