RBI Plans New Customer Compensation Norms, Moves to Curb Mis-Selling and Reform Loan Recovery Rules

Mumbai:The Reserve Bank of India (RBI) on Friday announced that to introduce revised guidelines on compensating bank customers for small-value fraudulent transactions, Governor Sanjay Malhotra announced on Friday, signalling a broader push to strengthen consumer protection across the financial system.
The existing rules on customer liability in unauthorised electronic banking transactions were issued in 2017, defining conditions for zero or limited liability. With rapid technological advances and growing digital payments, the RBI has reviewed these norms. Malhotra said draft revised instructions — including a framework for compensating customers in smaller fraud cases will soon be released for public consultation.

The central bank is also tightening regulations to prevent mis-selling of financial products by banks and non-banking financial companies (NBFCs). Highlighting the risks posed by aggressive sales practices, the Governor stressed that third-party products offered at bank counters must align with customers’ needs and individual risk appetite.

Comprehensive draft guidelines covering advertising, marketing and sales of financial products will be issued shortly. Additionally, the RBI plans to review and harmonise conduct-related rules governing loan recovery and the engagement of recovery agents. At present, different regulated entities such as banks and NBFCs follow separate instructions. Draft proposals aimed at streamlining these practices will also be placed in the public domain for feedback.