RBI to introduce new guidelines on conduct of banks to tackle the issue of mis-selling

M. Rajeshwar Rao, Deputy Governor of the Reserve Bank of India

The Reserve Bank of India (RBI) has announced plans to roll out new guidelines specifically targeting the conduct of banks in relation to the mis-selling of financial products, according to RBI Deputy Governor M Rajeshwar Rao.

This move comes as part of an effort to curb practices that lead to consumer detriment and to ensure a level playing field in the financial services sector, he said.

RBI Governor Sanjay Malhotra, while addressing the press, said that the RBI will not tolerate instances of mis-selling, highlighting two major concerns that arise when banks engage in such practices through subsidiaries or related entities.

"Firstly, there is a clear conflict of interest when a bank or its subsidiary engages in the same business," Malhotra explained. "Secondly, this leads to regulatory arbitrage, where banks operate under one set of laws while NBFCs operate under another."

The Deputy Governor pointed out the inherent risks of allowing banking entities to take on the practices typical of NBFCs, which could expose banks to legacy issues. Banks operate under a different regulatory framework than NBFCs, and we aim to prevent the risks associated with NBFCs from spilling over to banks, Malhotra added.

This announcement follows recent public complaints and regulatory observations regarding banks pushing financial products to customers, often driven by sales targets rather than their needs.