RBI’s proposed phone-locking rules could reshape India’s smartphone EMI market

Smartphone financing has become too important to India’s handset market to be treated as a side issue. As device prices rise and premiumisation deepens, EMI-led purchases now play a major role in moving consumers from entry-level phones to higher-value upgrades, with Reuters reporting that more than one-third of consumer electronics purchases in India are happening on credit. Earlier ET Telecom reporting and industry channel estimates indicate that financing penetration in premium smartphone categories and offline retail channels could already be in the 60–70% range as devices become costlier.

That is why the Reserve Bank of India’s latest position on phone-locking matters far beyond banks and NBFCs. The draft framework indicates that lenders cannot use technology to disable or restrict a borrower’s device as a recovery tool except in device-finance loans under the proposed conditions, and the RBI has now proposed a narrow exception for devices financed through that specific loan, with the revised draft set to take effect from October 1, 2026.

EMI is now core to smartphone sales

The Indian smartphone market’s premiumisation story has been built not only on better products, but also on easier financing. EMI has become the bridge that allows a buyer who may not be able to pay Rs 25,000–Rs 60,000 upfront to still move into a better device, which in turn supports ASP expansion for brands, improves conversion for retail channels, and has also become an important category within consumer durable financing.

This is especially important in offline retail, where financing often closes the sale. A large share of premium and upper mid-tier devices is increasingly sold not on sticker price but on a monthly affordability pitch, which means any disruption in lender appetite can directly affect volumes, especially in festive and upgrade-heavy quarters.

Delinquencies are rising

That financing engine, however, is showing signs of strain. Industry reporting indicates that delinquency rates on mobile phone financing have climbed to 2.7%–2.9%, versus an expected benchmark of around 2%, suggesting that handset loans are becoming riskier for some lenders and underwriting pools.

The stress is showing up in the broader consumer durable credit environment, too. The Times of India reported that outstanding consumer durable loans, including smartphone finance, stood at Rs 22,279 crore as of September 19, 2025, down 4.23% from Rs 23,264 crore a year earlier, reflecting a more cautious financing climate. In simple terms, smartphones still need EMI, but lenders are becoming more selective about whom they fund and on what terms.

RBI’s current position: no locking yet

For now, the regulatory position is straightforward: lenders do not have a blanket approval to disable or restrict a borrower’s phone simply because the borrower has defaulted. Even in the case of smartphone financing, the RBI has not yet given final approval for routine device blocking under the current regime, so any suggestion that lenders already have blanket legal authority to brick financed handsets would be misleading.

The draft also comes amid broader regulatory scrutiny of digital lending and recovery practices. This is separate from the Department of Telecommunications’ CEIR framework, which is designed for blocking lost or stolen phones rather than enforcing loan recovery.

What changes from October 1

The revised draft creates a tightly ring-fenced exception. From October 1, 2026, lenders may be allowed to use technology-based mechanisms to restrict certain functions of a borrower’s device, but only if that exact device was financed by the lender through the relevant loan.

The conditions are strict. The loan must be 90 days past due before restrictions can begin; the lender must issue a first notice once the account is 60 days overdue and give the borrower at least 21 days to cure the default; then, a second notice must provide another seven days before restrictions are activated. The loan agreement must also expressly and unambiguously permit such restriction, explain the graduated approach, and disclose timelines and grievance-redress mechanisms.

The RBI has protected essential functions. Internet access, incoming calls, emergency SOS features, and government or public-safety notifications cannot be blocked, and any restriction must be reversed within one hour once the borrower cures the default; delays or wrongful action would attract compensation of Rs 250 per hour. In addition, the locking mechanism must be removed once the loan is fully repaid, and the lender cannot use the mechanism to access, use, or retain data from the phone.

Who can still sell a phone with locking enabled

The right, if finally approved, belongs to the regulated lender financing the phone, not to a retailer acting independently. That means a seller or dealer cannot simply decide at the counter to add a locking mechanism to an EMI phone on their own discretion.

A phone can still be sold under a lender-led financing structure that embeds a compliant restriction mechanism. In practice, that means one of two things:

A bank or NBFC finances the handset, and the retailer acts only as a sales or distribution partner.

The seller itself owns or operates an RBI-regulated NBFC, and that NBFC is the actual lender of record for the phone purchase, with explicit borrower consent and full contractual disclosure.

Even in the second case, the seller cannot use the lock casually as a retail recovery shortcut. The mechanism would need to sit inside the NBFC’s regulated loan programme, be disclosed in the contract, activate only after the required default and notices, preserve essential functions, and be reversed quickly after repayment.

Implications for brands, channels, and customers

For brands, the proposal is a double-edged instrument. On one side, lenders may view the proposal as a mechanism to improve recoverability in small-ticket device loans and help sustain financing availability in categories where EMI is critical to conversion, especially mid-premium and premium devices. On the other hand, any perception that financed phones can be remotely controlled may create consumer hesitation, especially among more price-sensitive borrowers.

For retail channels, especially offline, the biggest benefit would be improved credit continuity. If lenders feel more secure about recoveries, they may remain more active in store-led financing programmes, but the cost will be tighter documentation, clearer disclosures, and higher compliance and disclosure burdens in retail-led financing.

For end customers, the proposal raises both risk and protection. Default may now carry a more tangible consequence on the device financed through the loan, but the borrower also gets a more transparent framework: advance notice, protected essential functions, data safeguards, restoration within one hour after payment, compensation for wrongful restriction, and removal of the locking mechanism after full repayment. That is a far more rule-bound model than a loosely enforced collections practice.

The bigger issue for the industry

The most important point is that this is not really a story about whether banks can block phones. It is a story about whether India can keep smartphone EMI growing without allowing credit losses to spiral, and whether lenders can regain enough confidence to continue funding aspirational device upgrades at scale.

If implemented well, the RBI’s draft could make recoveries more structured and predictable for lenders while protecting borrowers from abusive digital collection methods. If handled poorly, it could hurt trust, slow EMI adoption, and complicate the affordability engine that has become central to India’s smartphone sales model. The framework remains at the draft stage and could still evolve before final notification.