New Delhi: The Reserve Bank of India has adopted a tougher stance on mis-selling and regulatory violations, imposing monetary penalties on several banks and financial institutions. The action follows lapses in customer service norms, Business Correspondent guidelines, loan-to-value (LTV) ratios in gold loans and NPA classification. At the same time, the central bank has released a draft framework aimed at curbing mis-selling and strengthening customer protection.
Penalties on Banks: LTV, Data Reporting and Customer Norms
Under the penalties announced on February 13, CSB Bank was fined ₹63.60 lakh for non-compliance with directions related to Business Correspondents and customer service standards. Bank of Maharashtra was penalised ₹32.50 lakh for failing to report Self-Help Group member-level data to credit information companies and for not identifying beneficial owners in certain accounts.
DCB Bank was fined ₹29.60 lakh for not maintaining the prescribed LTV ratio in certain non-agricultural gold loan accounts. Lending beyond the stipulated LTV threshold is considered a breach of risk management norms and can affect asset quality.
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NBFCs Also Face Regulatory Heat
The RBI also acted against non-banking financial companies. IIFL Finance was fined ₹5.3 lakh for failing to classify certain restructured accounts as non-performing assets in a timely manner. Navi Finserv was penalised ₹3.8 lakh for its recovery agents contacting customers outside the permitted time window, violating customer protection guidelines.
The central bank clarified that these penalties are intended to strengthen the culture of regulatory compliance and safeguard customer interests across the financial system.
Draft Framework on Mis-selling: A Broader Reform Push
Alongside the enforcement action, the RBI has issued a draft framework to address mis-selling. The draft defines mis-selling to include selling products unsuitable to a customer’s risk profile, providing misleading or incomplete information, selling without explicit consent and forcing customers into bundled products. The framework aims to bring uniformity in grievance redressal and accountability.
Compliance Message to the Financial Sector
Banking experts note that complaints related to aggressive selling of insurance, investment and third-party financial products have risen in recent years. Once the new norms are implemented, banks will be required to align product offerings with a customer’s income, risk appetite and financial objectives, failing which they may face regulatory action.
The latest measures signal tighter supervisory scrutiny on compliance, data reporting, customer consent processes and risk management. Banks and NBFCs will need to strengthen internal controls, ensure transparency in reporting and align recovery and sales practices with regulatory standards, or risk further monetary and supervisory action.
