Lender to lock phone if EMI is missed

What will happen if you miss EMI on your phone loan?

• Defaulting on EMIs on a loan taken to purchase a mobile phone might result in your phone getting locked by the loan lender.
• The mechanism works using an app installed on the phone during loan issuance, which will allow lenders to partially disable the phone when EMIs are missed.
• Although the phone will be locked, basic functions such as emergency calls will be available.

Loan defaulters’ phone at risk; discussion going on between RBI and lenders

• According to sources, a discussion is going on between RBI and lenders to clamp down a rise in bad assets in the consumer durables sector.
• Last year, RBI asked lenders to stop a move in locking phones of loan defaulters.
• According to the Reuters report, after consulting lenders, the Reserve Bank of India is going to update its Fair Practices Code within months, to introduce guidelines on phone-locking mechanisms.
• If the move is implemented, it would benefit major consumer lenders, particularly NBFCs such as Bajaj Finance, DMI Finance, and Cholamandalam Finance by increasing recoveries and easing loans to customers with poor credit.

Loan Recovery vs Consumer Rights

• About one-third of consumer electronics, including phones, are bought on small-ticket loans in the country, a 2024 study by Home Credit Finance showed.
• India with a population above 1.4 billion is home to more than 1.16 mobile connections, according to TRAI, which reflects deep market penetration.
• According to a Crif High Mark data, lower ticket size loans (below Rs 10,000) have the highest loan default rate (1.5 per cent for portfolio at risk of default within 31-90 days in June 2025), even as there are indicators of improvement on a year-on-year basis.
• According to a private sector bank executive, lower ticket size loans section is under scrutiny for its high default rate.
• This move, when implemented will make consumers wary of loan default. But there needs to be a balance between loan recovery and consumer rights.
• Industry sources also said that consumer durable loans are expected to get a boost from the measures such as direct and indirect tax rationalization and festive season sales and timing of such measures have to be carefully considered.
• Consumer advocates caution us of potential exploitation of millions if the change is incorporated.
• “This practice weaponizes access to essential technology to enforce behavioral compliance, locking users out of livelihoods, education, and financial services until repayment,” said Srikanth L., founder of advocacy group CashlessConsumer.

Editor’s Note

• With the measure to lock phones on inability to pay EMI on time, may result in lower rates of loan defaults, consumer rights groups such as CashlessConsumer warn against potential exploitation of billions of people. Given that, it will be imperative to see if this measure can reduce loan default rates.