RBI to Overhaul Customer Compensation Rules for Small-Value Bank Frauds

RBI Governor Sanjay Malhotra announced on Friday that the central bank will soon introduce a new framework for compensating customers affected by small-value fraudulent electronic transactions.

The decision comes as a response to the rapid evolution of payment technology since the last set of guidelines was issued in 2017. While the current rules define “zero or limited liability” for customers, the RBI has completed a comprehensive review to align these protections with modern cybersecurity threats and the high volume of digital payments.

Key Highlights of the RBI Announcement:

• Draft Guidelines Soon: The central bank will shortly release draft revised instructions for public consultation, focusing specifically on a compensation framework for small-value frauds.
• Crackdown on Mis-selling: The RBI is tightening the noose on banks and Non-Banking Financial Companies (NBFCs) regarding the mis-selling of third-party financial products. New rules will ensure that insurance or investment products sold at bank counters are “suitable” for the specific customer’s risk appetite.
• Unified Recovery Rules: To curb harassment, the RBI will harmonize conduct-related instructions for loan recovery agents. This will create a single, strict standard for both banks and NBFCs during the debt recovery process.
• Advertising Transparency: New comprehensive instructions will be issued regarding the advertising, marketing, and sales of financial services to prevent misleading claims.

Governor Malhotra emphasized that mis-selling has significant consequences for both the consumer and the stability of the financial entity. “There is a felt need to ensure that products sold at bank counters are commensurate with the risk appetite of individual clients,” he stated during the Monetary Policy announcement.