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RBI Drafts New Rules for Bank Fraud Compensation & Mis-Selling

The Reserve Bank of India is drafting new rules to establish a compensation framework for customers affected by small-value fraudulent banking transactions. RBI Governor Sanjay Malhotra announced the move, stating the existing 2017 guidelines are being revised due to rapid technological adoption. Simultaneously, the RBI is tightening regulations to prevent banks and NBFCs from mis-selling financial products unsuitable for customers. The central bank will also harmonise all conduct-related instructions for loan recovery agents across different regulated entities.

Key Points: RBI Announces New Rules for Bank Fraud Compensation

  • New compensation for small-value fraud
  • Tighter rules on financial product mis-selling
  • Harmonised loan recovery agent guidelines
  • Rules to be issued for public consultation
  • Aims to protect customer rights
2 min read

RBI to issue new rules for banks to compensate customers in case of fraud

RBI Governor announces draft rules for customer compensation in small-value frauds, tighter curbs on mis-selling, and harmonised loan recovery guidelines.

RBI to issue new rules for banks to compensate customers in case of fraud
"The draft revised instructions, including a framework for compensation in case of small-value fraudulent transactions, shall be issued shortly for public consultation - RBI Governor"

Mumbai, Feb 6

RBI Governor Sanjay Malhotra announced on Friday that the RBI is drawing up fresh rules on compensation for customers of banks in case of small-value fraudulent transactions.

The extant instructions on limiting the liability of customers in unauthorised electronic banking transactions were issued in 2017, which deal with scenarios and timelines for zero or limited liability of a customer. In view of the rapid adoption of technology in the banking sector and payments systems, since the issuance of these instructions, the existing instructions have been reviewed. Accordingly, the draft revised instructions, including a framework for compensation in case of small-value fraudulent transactions, shall be issued shortly for public consultation, the RBI Governor said.

He also said that the RBI is tightening rules to check banks and NBFCs from mis-selling financial products and services.

Mis-selling financial products and services by any bank or NBFC has significant consequences for both customers and the financial entity itself.

There is a felt need to ensure that third-party products and services that are being sold at the bank counters are suitable for customer needs and are commensurate with the risk appetite of individual clients.

It has therefore been decided to issue comprehensive instructions to REs on advertising, marketing and sales of financial products and services. The draft instructions in this regard shall be issued shortly for public consultation, the RBI Governor said.

He also said that the RBI has decided to review and harmonise all the extant conduct-related instructions on engagement of recovery agents and other aspects related to recovery of loans. Accordingly, the draft instructions in this regard shall be issued shortly for public consultation.

Currently, different sets of instructions are applicable to different categories of Regulated Entities (REs), such as banks and NBFCs, with respect to the engagement of recovery agents and conduct-related aspects of loan recovery.

- IANS

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Reader Comments

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Rohit P
Good move by RBI. But the devil will be in the details. What exactly is "small-value"? For a daily wage worker, even ₹5000 is a huge amount. The framework must be sensitive to the economic reality of different customers, not just a fixed number.
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Sarah B
The part about mis-selling is crucial. My father was sold a complicated insurance policy at his bank branch when he just wanted a fixed deposit. He didn't understand the risks. Banks should be held accountable for pushing products that don't suit the customer's needs.
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Aman W
Harmonising recovery agent rules is long overdue. Some agents use very intimidating tactics, especially with small borrowers. Everyone should repay loans, but the recovery process must be civilised and within legal limits. RBI must ensure strict enforcement.
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Karthik V
While I welcome these consumer protection measures, I hope the RBI also focuses on improving the financial literacy of customers. Many frauds happen because people share OTPs or click on phishing links. Awareness is the first line of defence.
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Nisha Z
A respectful criticism: The timeline for "shortly" and "public consultation" worries me. These issues are urgent. The 2017 rules are ancient in tech terms. Hope the draft comes out quickly and implementation is not delayed by bureaucratic processes. Jai Hind.

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