In a clear signal that consumer protection is moving to the top of the regulatory agenda, Reserve Bank of India (RBI) on Friday announced a series of measures aimed at curbing mis-selling of financial products, limiting customer losses in online frauds and tightening norms governing loan recovery agents.
At the heart of the move is a plan to issue comprehensive draft instructions governing how banks and other regulated entities advertise, market and sell financial products and services. RBI says mis-selling — particularly of third-party products sold at bank counters — has had serious consequences for customers and institutions alike, underlining the need to ensure that products are suitable for a customer’s needs and risk appetite.
The measures, outlined in RBI’s statement on developmental and regulatory policies, are designed to address rising complaints from bank customers and digital payment users, even as India’s financial system becomes more complex and technology-driven.
Digital Fraud: RBI Moves To Limit Customer Losses
The major consumer-facing step announced by RBI is a comprehensive review of the framework governing customer liability in unauthorised electronic banking transactions. The existing rules, framed in 2017, are being revisited to reflect the rapid growth of digital payments and the increasing sophistication of fraudsters.
RBI says revised draft instructions will include a formal compensation framework for customers affected by small-value fraudulent transactions. The proposals will be released for public consultation, signalling a more structured approach to addressing digital fraud losses borne by users. The central bank will introduce a framework to compensate customers up to ₹25,000 for losses incurred in small-value fraudulent transactions.
To reinforce these safeguards, the central bank will also publish a discussion paper exploring additional protections in digital payments. These may include measures such as lagged credits and extra layers of authentication for specific user groups, including senior citizens, to reduce the risk of fraud without undermining ease of use.
Recovery Practices under Sharper Scrutiny
RBI also says it will review and harmonise existing instructions related to loan recovery and the engagement of recovery agents. At present, different categories of regulated entities follow different sets of norms, often leading to inconsistent practices on the ground.
By issuing a unified framework, RBI says it aims to bring greater clarity and accountability to recovery processes, a move expected to address long-standing concerns over harassment and coercive recovery tactics faced by borrowers.
Draft instructions on recovery norms will be placed in the public domain shortly for stakeholder feedback, it added.
Wider Regulatory and Inclusion Measures
Alongside the consumer protection push, RBI announced steps to improve access to credit and ease regulatory burdens where risks are limited. The limit for collateral-free loans to micro, small and medium enterprises (MSME) will be doubled from ₹10 lakh to ₹20 lakh, a move aimed at strengthening last-mile credit delivery.
The central bank has also reviewed key financial inclusion frameworks, including the lead bank scheme, the kisan credit card scheme and the business correspondent model. Revised guidelines for these initiatives, along with a unified reporting portal for lead bank data, will be issued after public consultation, it added.
On the regulatory front, RBI proposed exempting certain non-banking financial companies (NBFCs) that do not accept public funds and have no customer interface from registration requirements, citing their lower systemic risk profile.
RBI's policy package also includes measures to deepen financial markets, ease foreign exchange regulations for authorised dealers and strengthen urban cooperative banks through a new capacity-building programme, Mission SAKSHAM.
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