Should lenders be allowed to 'kill' financed phones if EMIs aren't paid?

Can banks and lenders remotely lock a mobile phone that was purchased on EMIs if the borrower stops paying? That’s the debate the Reserve Bank of India (RBI) is now weighing.

At a recent post–monetary policy press conference, RBI Governor Sanjay Malhotra confirmed that the central bank is actively examining a proposal from banks and non-banking financial companies (NBFCs) to allow such digital “collateral enforcement.”

“Such a proposal is currently under discussion, and we are getting views both for and against,” Malhotra said. “Our effort is to ensure that a consumer’s rights are maintained, in terms of data privacy. The consumer’s interest is paramount, while we consider the issues faced by banks.”

If approved, the move would require revising RBI’s Fair Practices Code to explicitly allow lenders to remotely disable financed smartphones.

Importantly, the lock would only be permitted with prior consent from the borrower at the time of signing the loan agreement.

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The technology would also have to be designed in a way that prevents lenders from accessing or tampering with personal data.

Rise of consumer credit for electronics

The proposal comes against the backdrop of an explosive rise in small-ticket consumer loans for electronics, especially smartphones. Just four years ago, in 2020, only about 1 per cent of phones and white goods were purchased on credit. By last year, that number had skyrocketed to 37 per cent, according to industry estimates.

This surge reflects two shifts: the increasing affordability of credit due to easy EMI schemes and the aspirational demand for high-end phones even among lower-income groups. Lenders, especially NBFCs and fintech players, have been quick to capitalise on this demand.

But aggressive lending has also resulted in a spike in defaults in this segment.

Kill apps and RBI’s ban last year

Interestingly, some lenders weren’t waiting for regulatory permission.

Until last year, several financing firms were already installing “kill apps” on financed devices—apps that could disable phones if borrowers defaulted.

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The RBI, however, cracked down on this practice in 2023, citing consumer rights and privacy concerns.

But with default rates mounting, lenders have renewed pressure on the regulator to reconsider.

The RBI is now rethinking its position, looking for a middle ground that can protect borrowers’ privacy while also safeguarding lenders’ financial interests.

Why lenders want the locking option

From the lenders’ perspective, the logic is straightforward.

Just as banks can repossess a car or house if loan EMIs go unpaid, they argue smartphones bought on credit should also be treated as enforceable collateral.

Unlike vehicles or property, however, smartphones are difficult to physically recover once sold. A remote locking mechanism would act as a deterrent and recovery tool.

Many lenders believe even the threat of a phone being disabled would encourage timely repayments, reducing the number of bad loans in the consumer electronics segment.

With loan books swelling due to small-ticket credit, the stakes are high.

Critics warn of overreach

Yet, critics say allowing lenders to “kill” a financed phone crosses a line.

Mobile phones today are indispensable. They are not just communication devices but gateways to work, education, health services, emergency alerts, banking and digital identity.

Blocking access—even temporarily—could cause disproportionate harm to borrowers and their families.

Another red flag is privacy.

Even if lenders promise not to access or tamper with user data, the very existence of a kill-switch creates a surveillance-style vulnerability. Consumer rights activists argue that granting such powers to financial institutions could erode trust in both lenders and regulators.

Operational questions remain unresolved as well. For instance, how many missed EMIs would trigger a lock?

Would there be grace periods, warnings and transparent dispute resolution mechanisms? What if borrowers miss payments due to billing errors or short-term cash flow issues?

Without clear safeguards, critics worry the tool could become punitive rather than protective.

Who is really to blame for defaults?

The larger question is whether borrowers alone should bear the blame for rising defaults—or whether lenders themselves are culpable.

In recent years, banks and NBFCs have expanded aggressively into sub-prime segments, extending loans to customers with weak repayment capacity.

While this has driven financial inclusion and boosted sales of consumer electronics, it has also created a bubble of unsustainable credit.

Critics say lenders are partly responsible for rising defaults because of lax credit assessment and a chase for short-term growth. Penalising borrowers harshly for systemic over-lending may not be a fair solution.

Striking the right balance

Ultimately, the debate reflects a broader challenge for regulators: how to balance consumer protection with lender security in an era of rapidly growing digital credit.

On one hand, lenders need enforceable tools to safeguard their assets. On the other, consumers must not be stripped of essential digital rights.

RBI’s likely approach will be to permit phone-locking only with strict conditions: explicit borrower consent, a transparent framework for usage and technology that safeguards privacy.

Whether this compromise will satisfy both lenders and critics remains to be seen.

Allowing lenders to lock financed phones may be an innovative solution, but it risks turning a basic tool of modern life into a bargaining chip.

The RBI’s decision—expected in the coming months—will set a crucial precedent. If it greenlights digital locks, India will become one of the first major economies to legitimise such a practice.

The outcome will likely shape the future of small-ticket lending and the boundaries of consumer rights in the digital age.