Why RBI should permit a kill-switch for phones bought on loans: It will aid credit expansion

Subscribe to enjoy similar stories. After saying that the Reserve Bank of India (RBI) is evaluating whether to bring back the policy of allowing loan-financed phones on which repayments are interrupted to be locked as a method of enforcing credit discipline, the central bank has not moved on the subject.

It should go ahead and give a green signal for the use of technology to enforce credit discipline. Graded deactivation might well be a good way to ensure guaranteed servicing of loans taken to purchase electric cars and other software-dependent consumer durables in the days to come.

The mechanism of remotely turning a functional piece of equipment into an unusable liability in the event of a default in the servicing of the loan taken to purchase it is better than physical repossession in case of such a default. It would lower the cost of making such loans and benefit both borrowers and lenders.

In mid-2024, RBI acted on consumer complaints about non-banking finance companies (NBFCs) that financed the purchase of smartphones using a remote kill-switch to deactivate them on repayment defaults; NBFCs were also accused of prying into the phone-owner’s private data contained in the phone. RBI used its powers of suasion under its supervisory authority to stop lenders from taking such action—even when borrowers defaulted on their equated monthly instalment (EMI) obligations.

Many saw the behaviour of lenders as a case of corporate encroachment and suspected them of snooping on the conduct and social interactions of phone users in violation of their right to privacy as citizens. A seemingly libertarian outcry against ‘corporate greed’ being allowed to smother citizen rights may have cowed RBI into abandoning credit discipline in