Daybreak - Miss a smartphone EMI, and your lender can now wirelessly strip the ‘smart’ out of it

Episode Date: July 10, 2026

Naresh drives for Rapido. When his phone died, so did his income — for seven days, until he could borrow enough to replace it.Until 2024, India's biggest consumer lenders had turned that exact vulnerability into a recovery tool. Miss an EMI, lose your phone. It worked so well that smartphone lending grew from 1% to nearly 40% of consumer borrowing in three years. Then the RBI banned it. Lending collapsed by 80%. Delinquencies rose. Rejection rates hit 50%.Now the tool is coming back. This time with guardrails. The question is whether they're enough.*We want to get to know you a little better. Tell us what you think about Daybreak here.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

For millions of gig workers in India, their entire livelihood runs on a 5-inch screen phone. Receiving orders, booking rides, scheduling massages. If the phone were to suddenly stop working, then that usually means that the income also stops flowing. Turns out, this dependence is also what some of India's biggest lenders recognized as an opportunity. Up until 2024, NBFCs are not. banking finance companies like Bajaj Finance, Jolla Mandelam and DMI Finance were financing smartphone loans by weaponizing that exact dependence as collateral. What they did was have these phones come preloaded with a very specific kind of software.

Software that allowed lenders, if you missed an EMI, to actually remotely disable your device. Sounds pretty scary, right? Well, it was. And it was scary enough that the tactic actually worked. Turns out, remote disable was one of the main reasons why borrowing for smartphones and home appliances increased between 2021 and 24, from 1% to nearly 40%. But the thing is, the demographic that was the most likely to take on these loans

was also the one that was most likely to default. You know, the ones who relied on their phones the most to earn, to survive and of course to even pay back the lender in the first place. Of course, as the remote disablements kept going on, the complaints piled up and advocacy groups raised alarms that eventually ended up reaching the regulator. And in 2024, the RBI finally stepped in and banned the practice. Which came with a surprising downside.

Delinquencies actually rose in number and soon so did the loan rejections. Lending to the segment collapsed by roughly 80% and it left the RBI weighing two very unsavory options. Either keep people locked out of credit entirely or let the lenders lock their phones again. But now, nearly two years later, the practice is back. A second draft amendment expected to be finalized around October once again gives lenders the legal cover to remotely disable phones,

but this time with very specific guardrails in place. The timing might even probably be for the best, as phone prices have been increasing because of rising memory costs and budget phones have started to disappear from the market entirely. To get into the story further, today on daybreak, we are joined by Mutasem Khan, who reported on the story to talk about how this recovery tool became as effective as it did, why banning it kind of backfired and what take two looks like for RBI. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Rejee to Vriguez, and every day of the week,

my co-host, Snita Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Friday, the 10th of July. So before Muthasim and I start getting into this discussion, I have a quick request for you. Snickta and I have been thinking a lot lately about this show, about what it is and what it could be, and about you, the people who show up for it every single morning. And we realized, we don't actually know that much about you. So we made the survey. It takes about three minutes and we're genuinely asking what's working, what isn't and what you want more of.

The link is in the show notes and we promise to read every single response. With that, let's get into it. Hi, Mutasim, thank you so much for coming on daybreak yet again. So I'd like to start with a question that basically covers what you started the story with, how you met this rapido driver named Nareesh who had to. to get a new cell phone as soon as possible because his livelihood pretty much dependent on it. Could you tell us a little bit more about what it means to be a gig worker without a smartphone? Right. Thanks, Rachel, for having me again. So this anecdote that I start the article with,

I was taking a rapido bike ride and the rider whose name was Neresh, actually who had just moved to Bangalore, I think about a year ago or something. And the reason for him moving to Bangalore was that, you know, family owned some farmlands, but because of drought, they were not getting enough produce. So he had to look for alternate livelihoods. And he knew that you could go to a city like Bangalore. If you have a vehicle, you can just like earn basic living, which is what, 18,000, 19,000 a month. But what had happened is suddenly his phone had stopped working about a week before I took the right. So for seven days, he was left without a phone.

And for him, that meant seven days of just no income. at all. And with that kind of income, if you're living in a city like Bangalore, you're literally living like hand to mouth in the sense that you have to plan your expenses really well. And a seven day delay is a huge deal. And it can just like mess your expenses and your spending patterns completely. So that is what I started with. And why this was relevant to the story is because the subject of the story, which is smartphones, financing against smartphones and how lenders now can are allowed by the RBI

to remotely lock the smartphone if you don't pay the EMI on that smartphone. So the idea is that gig workers is just one demographic but the idea is that technology today is so pervasive

it's everywhere yet the access to it is not nearly as pervasive right? There is a lot of distortion in terms of who has access to this kind of technology. At the same time, it is also increasingly

helping people move upward in an economic sense at least. And so it becomes important that people have more and more access to buy a smartphone, a smartphone with an internet connection, which can give you access

to all these different things. And that is where credit comes in, right? You can't buy a 15K smartphone today, but sure, you can borrow the money and then pay back later. So that is supposed to give access to this technology. And the point is that right now we are at a point where both of these things are happening

at scale, right? How much upward mobility, you know, a smartphone can get you or whatever side income it can get you. And at the same time, smartphone prices are also rising. So they are becoming more expensive and unaffordable to buy. So, yeah. Right. But there's something about this particular recovery tool, right?

like if financiers can just remotely lock your phone, that's very dystopian. Because these phones come pre-installed with software that can disable your device if you miss just a single EMI payment. So what exactly does the software do and what are the features they turn off? Like can you not access your phone at all or is it just locking some very specific features? Okay. So some context on that is the RBI actually had banned this practice in 2024.

It was pervasive before. It was a very widespread. It was almost like the normal way to finance a phone would be like this. What period was this? This is pre-20204. And I think it peaked in 2024. That is when the RBI came down on it. So we don't know what will look like right now because it's not,

I don't think it's completely operational yet after the new rules. But previously there are some like horrible accounts of what it would mean. I mean, generally speaking, it would just mean that your phone turned into a brick. I mean, it just stopped working the moment you missed your EMI payment. This third party who was controlling whatever, a software in your phone, would actually just shut it down. And imagine for someone like Nareesh, if this kind of thing is happening, his phone is basically his office, so to speak. And it's not just about, you know, getting a daily income, but also about just normal things, like I said, like this technology. Like, this technology has become so purpose.

A UPI payment, for example, you don't have cash or whatever. Or let's say you are stuck in a hospital somewhere or you have a medical emergency or some kind of emergency that you would really need your phone for. So those would just immediately go off. That was one. The second sort of more uglier part of it was also that this software would actually require access to a lot of your private information, which would be pictures on your gallery. your messages, contactless and all of that.

And so the recovery agents would use everything at their behest to scare or harass the borrower into paying, including, you know, morphing images or reaching out to their family members or whatever. So the second aspect of one aspect is that the phone not being functional. The second is also that, you know, it induces such a strong sense of anxiety and paranoia to have someone intrude so close into something that is such a like such a private. sort of affair. So it's also, it's almost like

a really aggressive intrusion into your private space as well. So these were some of the things that were happening at the time. And though the RBI banned it, it's very different from what it was before. We can talk about that. Right. So before we get into what the new draft and regulation is saying right now, you also mentioned in your article that this recovery tool was actually very successful.

Why was that? So imagine for something. like a phone, it's not like an asset, like a house, which, you know, the bank can claim their ownership over. It's also not something like, you know, you're not lending against anything, like you're not lending against gold. There's no collateral that you're giving. So what would the lender use as collateral?

And I think it's important to keep in mind that for a lender, this is a business. It has to be profitable for them to be able to give credit for the phone. So for example, for a Bajaj finance to help you finance your phone, they have to know that you're not a risky borrower. They have to know that you have repayment capacity, etc. Yeah. And I'm assuming a lot of these, I mean, this demographic specifically are first-time creditors. They're not people who have had credit before.

Oh, yes. Yes. A lot of these people are first-time creditors. Imagine someone who's moving from like a keypad phone to a touchscreen phone for the first time. I mean, this is what the category is called NTC new to credit. And that is sort of another aspect of why the RBI had to sort of rethink around whether or not this remote disablement should be there. Because, you know, right after the ban, you saw that delinquencies like almost doubled in this particular segment. some of the biggest lenders who did this smartphone lending, they wanted to be anonymous,

they said that it was almost collapsed by 80%. If you had 100 people before, you would give credit, let's say you gave credit to 100 people before as a lender. Now after the ban, because you don't have a collateral, you don't have a way to ensure that they pay back, which you earlier did through disabling their smartphone, harassment, whatever. So now you are only giving loans to 20 people. So 80% decline in the volume of loans that they were able to sanction that they, you know, that basically cleared their profit unit economics thresholds or whatever.

Right. So, yeah, I mean, pre-ban, you know, a lot of different trends converging to make, you know, buying smartphones very common. People just like hold it on geo, cheap internet, all of that. And so you could say there was a correlation. with remote disabling enabling the lender to lend against a smartphone which enabled adoption of a smartphone but post-2020 right after the van you actually see it in the numbers that you know lenders are now not lending to the people at all and so I think that is also part of

why the RBI wanted to rethink this. Parallelally we also know that because AI is taking up so much of memory throughput your phones are getting expensive phones are getting really expensive in fact there are some phones that were sub 8,000 which I found they were just stopped manufacturing because they wouldn't give big enough profit margin. So yeah, that is what was happening. We just touched on this but like I was hoping you can explain this a little better right where there's a surprising downside to this ban too

where obviously it's sad and you know kind of dystopian that you know these creditors can just switch off your phone. But like you said after the ban happened the number of defaulters increased. And that was also making it difficult for NBFCs to finance future loans. Can you explain why that's the case? Yes. So it was not that the number of defaulters increased per se.

So basically how this the chain, the sequence of events is that now the NBFC is lending to much less, is now giving loans to less number of customers to help them by the phone. Right. because they don't have security against the phone because they can't lock the phone. So the NBFCs stopped giving loans to these customers. And as a result, you know, phone sales completely dropped. And these NBFCs are working in tandem with the phone companies. So for example, DMI Finance, which is a large NBFC, Indian NBC,

was in an exclusive partnership with Samsung. Right. Where only two NBFCs would finance. against Samsung phones. And the thing about Samsung phones is that for them, this remote disablement technology, and we can talk more about this, actually is embedded in the hardware of the phone. Oh, okay. Yes.

So for other phones, you would have to download a third-party app to do it. But for Samsung, this is actually embedded in the hardware of the phone itself. So the remote disablement comes right from upstream. And Samsung does not have to worry about a third party to take care of the remote. remote learning. So they control the entire thing before. So the idea is that this was so common. Yeah.

That you had a big phone companies using, you know, embedding this technology in the hardware of the phone itself. Obviously, it had other sort of uses like more broader security uses or whatever. But this is what it was used for. But yes, sorry. Coming back to your question, you see the way I framed it is the RBA had to choose between three evils. obviously this is dystopian obviously it's not like something you would want to go through

at least i wouldn't want to have the feeling that you know someone has control over my phone from wherever i don't know but look at the alternative one alternative is either no credit no loans for them which is what we saw which is undesirable because on a macro scale you are stopping access to get to this technology the second alternative was that now since you don't have security on your phone, the lender will use more traditional recovery practices, like sending a recovery agent to your door. And a lot of these new to credit borrowers actually were women. And the number is huge.

I think it's more than 60% or something. And for them, having a recovery agent come to your village and knock at the door or whatever and it's most likely like a male recovery agent, that was a lot. That whole process involved a lot of social harassment and all that. So the second alternative of, you know, since you don't have the remote disablement mechanism, that is also gone. So what, what, this is the only, this is the least evil of the three alternatives less essentially if you want to ensure that all of these things are satisfied. So yes, there was a, there was a downside to the ban and the way to sort of rectify that is what RBI's new rules were, which we can discuss in more detail. Got it.

And I mean, this new draft regulation is also coming, like you mentioned, at a time and phones are getting more expensive and like lower budget phones are pretty much disappearing from the market. And a lot of people who need phones to kind of, you know, have their livelihood are being pushed into more expensive ranges. So what exactly is the draft regulation proposing? and they have also said that there are some very specific guardrails. So what are they and what are they doing differently this time? Okay. So this phone disablement thing is actually just a very small part of the overall draft regulations. The draft regulation is a broader document that is the RBI trying to reimagine rules around lending in general,

but more specifically around borrower protection. So, I mean, this is my interpretation and my source is interpretation. People might look at it differently. But what, I mean, the way the RBI sort of structures the document is you have a lot of rules around, for example, how you would conduct the recovery. For example, the rule that you cannot call after 8 p.m. at night or the rule that you cannot just show up to someone's house. So these are still not, still not enforced in writing. So the RBI has done this comprehensive thing of how do we protect the borrowers. As part of that broader draft resolution is this one point around lending against smartphones.

And there is where the RBI comes in and says, okay, you can allow a remote disablement mechanism. However, you have to follow X, Y, Z things, including, for example, that, you know, the app that you download, whatever, will not have access to more data than is required. or the fact that you cannot disable the phone right after the borrower miss the EMI. You have to wait for 90 days and you have to give them two warnings and only then can you disable the phone. Were there warnings before this, before the ban? There was no nothing in right. There was no like framework around this.

So people were free to just do whatever they wanted to do. So this framework basically regulates the phone locking mechanism itself. So you have to first give a. a bunch of warnings to the borrower before you can lock their phone and after they have paid the EMI the phone has to be unlocked and functional within

an hour of when the borrower has paid the loan so it's as if the RBI just looked at whatever was wrong with it they'll try to regulate against against those kind of possible practices got it and so this draft is soon

like it's going to be passed in October right? Yeah and while these are tightening these practices do you think the draft is doing enough to protect the borrowers or are there still some like unanswered questions? So I think what the draft has done at least up till now is to lay out in broad principles

what it wants lending against phones to look like. However, RBI has not gone into specific details. For example, it says that the draft says that essential functions of the phone should not be like tampered with but it does not define what constitutes essential functions other than it does mention also i should say that i should mention this it says that you know you cannot stop the internet connection of the phone you cannot stop emergency calls from the phone so there are like two or three things which the rba says specifically but other than that it's essentially just broad principles around what lending should

look like what what lending against phone should look like this is still the second draft amendment there is probably going to be more consultation with the public and exports, whatever, and then there will be another final thing. And that probably, I mean, people are expecting that will have more specific details on what you can and cannot do with the phones. Right. So what is enforcing these regulations going to look like? And is there anything that has been missed?

I'm not sure what it's going to look like, although there was one aspect of it which kept coming up in my conversations with people. which is that sure you are allowing remotely disabling phones but who are the parties who are going to have the authority or the control over your phone basically it's not going to be the NBFCs they don't have the tech to they don't I mean at least even before 2024 these were third party companies that would specifically

you know help you set up the tech that helps you disable the phone unlike in the case of Samsung that's an exception which is also probably why Samsung is better placed now in terms of sales of their phones because they control this whole thing upstream. But in any case, the point is that you need to have a third party who's going to be controlling this whole disablement process. And so the question is who is that third party going to be? I mean, you and I can start an NBC tomorrow and start a tech company tomorrow and say that

we'll have this. But since you have access to people's phones and data, it has to be trusted vendors and trusted players. So there are speculations that the RBI is actually going to create a sanctioned list of these third-party vendors also, especially also because there is a lot of Chinese phones in the market, you know, Opo, Vivo, and these are phones that also sit very comfortably at the same end of the spectrum where this phone financing happens the most. So I think there are concerns around who will have control over this remote disablement thing.

and the RBI has not said anything on that issue yet. But that is an unanswered question. And enforcement will probably work out based on what happens with this aspect of the situation. Okay, great. Thanks, Mattasim. I have done with my questions and we are at the end of time. Thank you so much for listening and we will see you next week. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform.

What you're listening to is just a small sample of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by my colleague Rachel Vargis and edited by Rajiv Sien.