RBI proposes groundbreaking changes in India’s loan market:Soon, banks won’t allow you to use products if you miss EMI payments

The Reserve Bank of India (RBI) is preparing to create a system where if consumers don’t pay EMIs, products purchased on loan and their services can be remotely disabled. The aim is to make recovery of small loans easier for products like mobile phones, TVs, washing machines. RBI has discussed this matter with banks and financial institutions. Finance expert Adil Shetty explains that the Reserve Bank will need to consider one important aspect. Loans given for phones, laptops or other such items are collateral-free. This means customers don’t need to mortgage anything against such items Therefore, their interest rates are higher at 14-16%. In this case, if the new system is implemented, these loans will come under the secured loan category (like home, auto loans). Therefore, before giving these rights to banks, the loan category will need to be changed and interest rates will need to be reduced. Everything you need to know in 5 points In the US and many other countries, there are systems where the car cannot start if EMI is not paid. 1. How will it be implemented in India?
The system RBI is considering will mainly apply to small consumer loans (like mobile, smart TV, washing machine, electronics). Products purchased on EMIs will have pre-installed apps or software. If the customer doesn’t pay the installment, that software will remotely lock the product. 2. Is personal data at risk?
The new rule will ensure that customer consent is taken and personal data remains secure even when the phone is locked. ‘Services suspended’ implies that the phone (or device) becomes unusable until dues are cleared. If banks are given permission to lock these devices, they will get access to millions of people’s data. This data could be leaked from there. This could increase incidents of blackmailing and ransom. RBI and banks will need to consider this aspect. 3. Is it possible in every product?
It is easily possible in mobile, tablet, laptop, smart TV etc., because their software can be controlled remotely. In vehicles (car/bike) many countries already have such a system where the car won’t start if EMI is not paid. In household appliances like fridge, washing machine, etc, it is possible but currently limited in markets like India. This solution doesn’t work for non-digital items (like furniture, regular bikes). In such cases, traditional recovery agents would be used and legal actions will be taken. 4. What are different countries doing?
America: ‘Kill switch’ technology is used in car loans. If EMI is not paid, lender can remotely shut down the car. Canada: Companies install ‘starter interrupt devices’ which prevent the car from running if payment is not made. Africa (Kenya, Nigeria etc.): ‘Pay-as-you-go’ solar systems are common here. If EMI is not paid, the company remotely shuts down the solar panel or battery. As soon as the installment is paid, the system is turned on. 5. What are its advantages and disadvantages? Advantages: Default cases decrease. Lenders’ confidence increases and people with weak credit also get a chance to buy products. Disadvantages: Threat to consumer rights, shutdown of essential services (phone/car) affects employment, education, health. More than 1/3rd people buy electronic items on EMI The share of small loans in the country is continuously growing. Home Credit Finance’s 2024 study says that more than one-third of consumers buy electronics, like mobile phones on EMI. The country has more than 1.16 billion mobile connections. According to CRIF Highmark, the default rate is highest in loans worth less than ₹1 lakh. This situation can improve. ​