RBI may introduce New Rules to Stop Mis-selling in Banks
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The Reserve Bank of India (RBI) is closely examining whether new rules are needed to prevent banks and non-banking financial companies (NBFCs) from mis-selling financial products to customers who may not fully understand them.
What Is Mis-selling and Why Is It a Problem?
Mis-selling happens when banks or financial companies sell products like insurance or loans to people who don’t really need them or can’t afford them. RBI Deputy Governor M. Rajeshwar Rao recently pointed out that many people are being sold financial products without proper explanation. These products are often pushed onto low-income families, which could lead to financial distress and loss of trust in the system.
He said that when financial services are sold just for profit, without caring about whether they suit the customer, it could harm the purpose of schemes meant to help the poor.
Concern Over Microfinance Lending
Rao also raised serious concerns about the microfinance sector. Microfinance companies give small loans to people from low-income groups. However, he said some lenders are charging very high interest rates, even when they have access to cheap funds. These lenders seem to be focusing only on profits rather than helping people.
He explained that the sector still faces big problems such as:
- High interest rates
- Over-borrowing by customers
- Harsh loan recovery practices
In some cases, these recovery methods have led to tragic incidents. That’s why Rao has asked lenders to:
- Avoid unethical recovery practices
- Improve how they check if a borrower can repay the loan
- Ensure lending is responsible and sustainable
He also called for a serious review of the way microfinance businesses operate — including their management and incentive structures — as these may be causing more harm than good to customers.
Poor Grievance Redressal a Growing Concern
Rao stressed that financial institutions must improve how they handle customer complaints. According to RBI data, customer complaints have gone up by 33% in FY 2023–24. This rise raises red flags about the quality of financial services and customer support. If customers’ concerns are not resolved quickly and fairly, they may lose faith in the financial system altogether.
He said banks and NBFCs must study where they’re going wrong and fix these issues immediately.
Financial Inclusion and Digital Push
Despite the challenges, Rao highlighted major progress in financial inclusion:
- Over 55 crore Jan Dhan accounts have been opened as of May 21, 2025.
- These accounts hold over ₹2.5 lakh crore in deposits, and 56% of them are owned by women — showing a strong move toward gender-inclusive banking.
Making India Digitally Enabled
Rao also talked about RBI’s efforts to make every district in India 100% digitally enabled. This means giving everyone at least one way to make digital payments — such as UPI, debit card, or mobile banking.
As of March 31, 2025, 514 districts in 15 states and 6 Union Territories have achieved 100% digital coverage. This is a major step toward making India a digitally empowered economy.
