MUMBAI: RBI may introduce tighter regulations to curb mis-selling of financial products, especially in cases where customer suitability and appropriateness are overlooked. “It is concerning that such mis-selling without regard to suitability and appropriateness would beget distrust in schemes aimed at providing a safety net,” said RBI deputy governor Rajeshwar Rao, cautioning that such practices could weaken trust in the formal financial system.To address this, the central bank is considering enhanced disclosure norms, stricter product suitability frameworks, and mandatory audits of sales processes followed by regulated entities. Rao said regulated entities need to “analyse the gaps and strengthen their processes to reverse the trend”.Speaking at a financial inclusion forum recently, Rao said access to finance should not be treated as charity but as a strategic necessity. “Financial inclusion should not be viewed as an act of philanthropy, but rather as a strategic investment in the nation’s economic and social development,” he said.“Even lenders having access to low-cost funds have been charging margins higher than the rest of the industry and which in several instances appear to be excessive,” said RaoRBI is also examining the possibility of mandating product suitability assessments, especially when dealing with vulnerable or first-time users. “It is important that products meant for vulnerable sections are not sold with a ‘one-size-fits-all’ approach,” Rao said. He added that financial inclusion should not compromise appropriateness.The surge in consumer complaints, which rose 33% year-on-year, has prompted RBI to consider strengthening grievance redress mechanisms. Rao pointed to the increase in complaints received by the ombudsman and said this called for “better complaint handling mechanisms, possibly with time-bound resolution and automated complaint tracking.” He indicated that penalties may be introduced for non-compliance with revised grievance norms.On the tech front, RBI may update its guidelines to regulate the use of AI, ML, and blockchain in financial services. Rao said responsible innovation must be guided by principles of fairness, transparency, and data protection. The proposed Unified Lending Interface is expected to move closer to implementation.
