Draft RBI (NBFC – Responsible Business Conduct) Amendment Directions, 2026

 - From Policy Intent to Enforceable Conduct Standards

On 11 February 2026, the Reserve Bank of India released the Draft Non-Banking Financial Companies – Responsible Business Conduct (Amendment) Directions, 2026 (“Amendment Directions”), effective from 1 July, 2026. These amendments form part of the RBI’s broader effort to recalibrate conduct regulation for regulated entities, particularly in areas impacting customer protection, fairness and governance.

Notably, the Amendment Directions flow directly from the policy intent articulated in RBI’s Statement on Developmental and Regulatory Policies, released alongside the February 2026 Monetary Policy. The Amendment Directions therefore represent a deliberate regulatory progression rather than an isolated compliance update.

Why Responsible Business Conduct Matters?

The regulatory emphasis on conduct is rooted in persistent customer-level issues observed across the NBFC sector. Common themes emerging from complaints, supervisory reviews and enforcement actions include:

• aggressive or intimidating recovery practices by third-party agents;
• lack of transparency in charges, penalties and loan terms;
• poor grievance redressal and delayed responses; and
• weak oversight over outsourced service providers.

These are not abstract concerns. In past enforcement actions, the RBI has imposed monetary penalties on NBFCs, including large consumer lenders, for failure to adhere to fair practices codes and for inadequate supervision of recovery agents. One prominent example is the penalty imposed on Bajaj Finance Limited for breaches linked to recovery practices and outsourcing-related conduct obligations. The RBI’s findings in such cases have consistently highlighted deficiencies in monitoring, governance oversight and accountability for third-party behavior.

These enforcement actions underline a clear regulatory message: customer harm arising from conduct failures will attract supervisory consequences, irrespective of whether the misconduct is carried out directly by the NBFC or through agents.

Key Regulatory Themes Reinforced:

1. Conduct Responsibility at the Board Level:

The amendments reiterate that responsible business conduct is a board-owned responsibility. Boards are expected to actively oversee conduct risks, approve relevant policies and ensure that customer-impacting issues are escalated and addressed in a timely manner.

This reflects the RBI’s broader supervisory approach, where conduct failures are increasingly viewed through the lens of governance effectiveness rather than operational lapses.

2. Customer-Centric Approach:

The Responsible Business Conduct framework emphasizes fairness not only at the point of loan origination, but throughout the customer relationship — including servicing, collections and closure.

The amendments reinforce expectations around:

• clear and accurate communication;

• transparent disclosures;

• proportionate recovery practices; and

• respectful engagement with customers, particularly in distress situations.

The regulatory emphasis is not merely on outcomes, but on the processes and controls adopted by NBFCs.

3. Accountability for Third-Party Actions:

A consistent theme in RBI supervision has been that outsourcing does not dilute responsibility. The amendments reaffirm that NBFCs remain fully accountable for the conduct of recovery agents, service providers and other third parties acting on their behalf.

This is particularly relevant in light of past penalties, where failures in agent supervision have been treated as direct regulatory breaches by the principal NBFC.

Legal Risk and Enforcement Outlook:

From a legal and regulatory risk perspective, the Amendment Directions should be viewed as part of a continuing enforcement trajectory rather than a static rulebook.

Key enforcement-linked risks include:

• Supervisory scrutiny of conduct: The RBI is likely to focus on customer complaints, grievance trends and supervisory findings, rather than policy documentation alone.

• Governance scrutiny: Conduct failures may be examined as board and senior management deficiencies.

• Third-party risk exposure: Misconduct by agents or outsourced partners may directly trigger regulatory action.

• Reputational impact: Public disclosure of penalties and supervisory actions continues to have reputational consequences for NBFCs.

Past penalties imposed on NBFCs for breaches of fair practices and conduct codes demonstrate that the RBI is willing to use monetary sanctions where deficiencies persist or are systemic.

Compliance Checklist for NBFCs:

Area of Regulation	Key Expectations	Checkpoints
Board & Governance Oversight	Board to exercise oversight over responsible business conduct and customer outcomes	• Has the board formally approved a Responsible Business Conduct policy? • Is conduct risk included in board/ committee agendas? • Are periodic reviews documented?
Senior Management Accountability	Clear accountability for implementation and monitoring	• Are roles and responsibilities for conduct risk clearly assigned? • Is there a designated senior officer for conduct compliance?
Customer Interaction & Fair Practices	Fair, transparent and reasonable treatment across customer lifecycle	• Are customer-facing SOPs reviewed for fairness and clarity? • Are disclosures standardized and legally vetted? • Is there monitoring of customer communications?
Marketing & Communications	Avoidance of misleading or aggressive practices	• Are marketing materials approved through compliance/ legal review? • Is there a documented review workflow? • Are digital communications audited periodically?
Loan Servicing & Recovery Practices	Respectful and proportionate recovery processes	• Are recovery practices aligned with RBI norms? • Are call timings, language and escalation protocols defined? • Is recovery agent conduct monitored?
Third-Party/ Outsourcing Oversight	Principal responsibility remains with NBFC	• Do outsourcing contracts include conduct obligations? • Are third parties trained on conduct standards? • Is there periodic performance and conduct review?
Grievance Redressal Mechanism	Effective, accessible and time-bound grievance handling	• Is the grievance framework publicly disclosed? • Are complaints tracked and analysed for trends? • Are unresolved complaints escalated appropriately?
Monitoring & Internal Controls	Ongoing monitoring of conduct risks	• Are internal audits covering conduct compliance? • Are conduct failures documented and remediated? • Is root-cause analysis undertaken?
Training & Awareness	Staff and agents to be sensitised on conduct standards	• Are regular trainings conducted on responsible conduct? • Are attendance and assessments documented? • Are agents included in training scope?
Regulatory Reporting & Supervision	Readiness for supervisory scrutiny	• Are conduct-related data points readily retrievable? • Is there a defined response protocol for RBI queries? • Are supervisory observations tracked to closure?

 

(Disclaimer: This checklist is intended for internal gap assessment and compliance readiness. It should be read with the RBI (NBFC – Responsible Business Conduct) Directions, 2025 as amended in 2026, and aligned with the RBI’s supervisory expectations articulated in the Statement on Developmental and Regulatory Policies.)

Compliance Action Plan:

From a supervisory perspective, the RBI’s focus is increasingly on evidence of implementation, not just policy existence. NBFCs must therefore consider:

1. Updating/ issuing:

• Responsible Business Conduct Policy;

• Fair Practices Code;

• Recovery & Collections SOP;

• Marketing & Communications approval workflow.

2. Amending outsourcing and recovery agent contracts to include:

• conduct obligations;

• audit and termination rights.

3. Aligning grievance redressal SOPs with escalation and turnaround expectations;

4. Maintaining a conduct-risk MIS (complaints, recovery issues, agent breaches);

5. Conducting train sessions for customer-facing staff, esp. team members from sales/ marketing and recovery agents;

6. Carrying out a legal and compliance review/ audit for gap analysis and particularly focusing on grievance handling, recovery practices and third-party oversight;

7. Presenting an implementation status note to the board.