Major Relief for Bank Customers; Repo Rate Kept Unchanged at 5.25%
Mumbai (Economy India): In a major move aimed at strengthening consumer protection and restoring trust in India’s banking system, the Reserve Bank of India (RBI) has announced plans to introduce strict new guidelines to curb harassment by loan recovery agents, prevent mis-selling of financial products by banks, and compensate customers for digital fraud.
The announcements were made by RBI Governor Sanjay Malhotra after the latest meeting of the Monetary Policy Committee (MPC). The central bank will soon release three draft regulations focused on improving customer safety, transparency, and accountability in the financial sector.
Crackdown on Loan Recovery Agent Harassment
The RBI has acknowledged persistent complaints from borrowers regarding unethical recovery practices, including late-night calls, intimidation of family members, and abusive behaviour by recovery agents.
Under the proposed framework:
- Banks will be held directly responsible for the conduct of their recovery agents
- Any violation of ethical recovery norms may attract heavy penalties and regulatory action
- Clear rules will be laid down on timing, communication methods, and borrower privacy
The move signals a shift from agent-level accountability to institutional responsibility, ensuring banks cannot distance themselves from the actions of third-party recovery agencies.
Economic impact:
Improved borrower protection is expected to increase confidence in formal lending, especially among retail borrowers and small businesses.
RBI Targets Mis-Selling by Banks
Mis-selling of financial products—where customers are sold insurance or investment products unsuitable to their needs—has been a growing concern across India’s banking sector.
The RBI’s upcoming guidelines will require banks to:
- Assess a customer’s financial needs, risk appetite, and suitability before selling products
- Eliminate coercive or misleading sales practices
- Maintain documentation proving informed customer consent
- Take responsibility for losses caused by mis-selling
This move is expected to significantly impact bancassurance and cross-selling practices, forcing banks to shift from target-driven sales to customer-centric advisory models.
₹25,000 Compensation for Digital Fraud Victims
In a major relief for digital payment users, the RBI has proposed a new framework to compensate customers for unauthorised digital transactions.
Key highlights:
- Customers may receive compensation of up to ₹25,000 for small-value fraudulent transactions
- Banks will be liable if customers report the fraud within the stipulated time
- A uniform digital fraud redressal mechanism will be introduced
With India witnessing exponential growth in UPI and online transactions, the RBI aims to ensure that digital adoption is backed by strong consumer safeguards.
Enhanced Protection for Senior Citizens
Recognising that senior citizens are among the most vulnerable to digital fraud, the RBI will release a discussion paper seeking public feedback on additional security measures.
Proposals include:
- Additional authentication layers for high-risk users
- “Lagged credit” mechanisms to delay fund transfers
- Enhanced alerts and transaction controls
These measures aim to prevent fraud before funds leave the system, particularly for less tech-savvy users.
Repo Rate Unchanged at 5.25%
The MPC has decided to keep the repo rate unchanged at 5.25%, maintaining its focus on inflation control while supporting economic growth.
What this means:
- Home loan and auto loan EMIs are unlikely to rise in the near term
- Borrowers and businesses benefit from rate stability
- RBI retains policy flexibility amid global economic uncertainty
Strengthening Trust in India’s Financial System
The RBI’s proposed regulations mark a decisive step toward building a fair, transparent, and consumer-friendly banking ecosystem. By addressing loan recovery misconduct, mis-selling, and digital fraud together, the central bank is reinforcing trust at a time when digital and retail banking are expanding rapidly.
If implemented effectively, these reforms could significantly improve customer confidence, deepen financial inclusion, and strengthen the foundation of India’s growing digital economy.
(Economy India)
