New Delhi — In response to rising concerns over mis-selling, poor product suitability, and growing consumer distress, the Reserve Bank of India (RBI) is poised to introduce a range of stricter regulatory measures for banks, NBFCs, and other regulated entities. The move comes after Deputy Governor M Rajeshwar Rao issued a stern warning at a recent financial inclusion forum, calling out financial institutions for eroding trust in the system through unethical practices and high-margin lending.
Rao emphasized that financial inclusion must be treated as a strategic priority, not charity, and that efforts to extend financial access should be accompanied by fairness, transparency, and suitability—especially when dealing with vulnerable populations.
Mis-Selling and Suitability: RBI Sounds Alarm on Erosion of Trust
Deputy Governor Rao expressed deep concern over the continued mis-selling of financial products, particularly in schemes designed as a safety net for low-income and first-time users. “It is concerning that such mis-selling without regard to suitability and appropriateness would beget distrust in schemes aimed at providing a safety net,” he said.
To counteract this trend, the RBI is evaluating tighter frameworks around product suitability, with a focus on mandatory suitability assessments, enhanced disclosure norms, and audits of sales processes followed by financial institutions. Rao pointed out that vulnerable sections of the population often receive financial products in a “one-size-fits-all” fashion, which not only defeats the intent of financial inclusion but may push them into cycles of debt and disillusionment.
He called upon regulated entities (REs) to introspect and analyse existing gaps in their processes, urging a move toward responsible financial product delivery that respects consumer rights and financial awareness.
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Complaints Soar 33%: RBI Eyes Stronger Grievance Redressal Framework
Another trigger for regulatory tightening is the 33% year-on-year surge in customer complaints received by RBI’s Ombudsman offices and grievance redressal centers. Rao emphasized that this uptick signals serious lapses in complaint handling, product delivery, and customer service standards.
To address this, RBI is exploring automated complaint tracking systems, time-bound grievance resolution protocols, and penalties for non-compliance. “We are examining the need for time-bound complaint resolution frameworks that ensure swift and fair redress. Accountability must follow service delivery,” Rao said.
The RBI also believes that product misalignment, lack of transparency, and aggressive marketing are major contributors to consumer distress. These are especially harmful in the case of digitally naive or newly banked users, many of whom fall prey to poorly explained or unsuited financial instruments.
Tech Innovation Must Be Responsible: Regulation on AI, ML, and Blockchain Coming
Beyond traditional banking issues, the Deputy Governor also addressed the rapid digitization of financial services, pointing to the growing use of artificial intelligence (AI), machine learning (ML), and blockchain across India’s financial ecosystem.
While lauding innovation, Rao made it clear that RBI is working on new regulatory guidelines to ensure these technologies are used responsibly. The central bank is particularly focused on ensuring fairness, transparency, algorithmic accountability, and data protection in AI/ML-driven decision-making tools.
Rao confirmed that the proposed Unified Lending Interface (ULI)—a major tech-driven initiative—was nearing implementation. This platform, designed to streamline credit access using alternative data and interoperability, will further democratize lending but must operate within strong ethical and regulatory safeguards, he stressed.