The Reserve Bank of India on Friday announced a sweeping set of measures to strengthen customer protection across the banking and financial system, stepping up its response to rising digital fraud, mis-selling of financial products and aggressive recovery practices. The proposals were unveiled alongside the latest monetary policy review, in which the policy rate was left unchanged at 5.25%.
At the heart of the announcement is a plan to issue three draft guidelines aimed at tightening oversight of product sales, limiting customer liability in unauthorised electronic transactions and standardising recovery processes used by lenders and their agents. The measures mark one of the central bank’s most comprehensive attempts in recent years to rebalance the relationship between financial institutions and retail customers.
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Mis-selling, recovery practices under lens
The RBI said the proposed rules would directly target mis-selling, particularly of complex financial products to retail customers without adequate disclosure or suitability checks. The draft framework is expected to spell out clearer accountability for banks and intermediaries, with penalties for violations.
Loan recovery practices will also face closer scrutiny. The regulator plans to lay down stricter norms governing the engagement and conduct of recovery agents, an area that has drawn repeated complaints from borrowers over harassment and coercive tactics.
Cap on losses from digital fraud
In a key relief for customers, the RBI proposed a compensation framework that would allow banks to reimburse users up to ₹25,000 for losses arising from small-value fraudulent digital transactions, subject to conditions. The move is aimed at restoring confidence in digital payments at a time when fraud cases linked to phishing, social engineering and unauthorised transfers continue to rise.
Complementing this, the central bank will release a discussion paper on enhancing digital payment safety. Among the ideas under consideration are lagged credits and additional authentication layers for specific categories of users, including senior citizens, who are often more vulnerable to fraud.
Push on financial inclusion
Beyond consumer protection, the RBI announced a review of key financial inclusion frameworks, including the Lead Bank Scheme, the Kisan Credit Card scheme and the Business Correspondent model. Draft revised guidelines for these initiatives will be issued, alongside a unified reporting portal to improve data management under the Lead Bank Scheme.
The central bank also raised the limit for collateral-free loans to MSMEs from ₹10 lakh to ₹20 lakh, a move expected to ease credit access for small businesses. In another step, banks will be allowed to lend to REITs, subject to prudential safeguards, to support funding in the real estate sector.
Urban cooperative banks, NBFCs get relief
To strengthen Urban Cooperative Banks (UCBs), the RBI announced four measures, including higher financial limits on unsecured loans and lending to nominal members. It also proposed removing certain tenor and moratorium restrictions on housing loans extended by larger UCBs.
Capacity building will be addressed through Mission-SAKSHAM, a training initiative aimed at more than 1.4 lakh participants from cooperative banks, focusing on managerial and technical skills.
For Non-Banking Financial Companies (NBFCs), the RBI signalled further ease-of-doing-business reforms. NBFCs with no public funds or customer interface and assets below ₹1,000 crore may be exempted from registration requirements. Some categories may also no longer need prior approval to open more than 1,000 branches.
Financial markets reforms
In the financial markets segment, the RBI removed the ₹2.5-trillion investment cap under the Voluntary Retention Route, while retaining existing ceilings under the general investment route. It also proposed a regulatory framework for derivatives on corporate bond indices and total return swaps on corporate bonds, in line with the Union Budget 2026–27.
Draft revised guidelines for authorised dealer banks and stand-alone primary dealers will offer greater flexibility in foreign exchange transactions. Regulations governing External Commercial Borrowings have been finalised and will be notified shortly.
Focus on financial literacy
The RBI announced that Financial Literacy Week will be observed from February 9, with the 2026 theme set as ‘KYC – Your First Step to Safe Banking’. Banks have been urged to actively participate, particularly as the regulator continues its re-KYC drive.
The bigger picture
Taken together, the measures signal a sharper regulatory focus on customer rights, digital safety and responsible lending, even as the financial system grows more complex and technology-driven. While banks may face higher compliance costs, the RBI’s stance underscores its view that trust and consumer protection are central to the long-term stability of India’s financial ecosystem.
About the author – Rehan Khan is a law student and legal journalist with a keen interest in cybercrime, digital fraud, and emerging technology laws. He writes on the intersection of law, cybersecurity, and online safety, focusing on developments that impact individuals and institutions in India.
