The Reserve Bank of India (RBI) has announced comprehensive norms for regulated entities on advertising and marketing to prevent mis-selling of financial products. The central bank emphasized that mis-selling by regulated entities has significant consequences for both customers and the financial sector, according to its Report on Trend and Progress of Banking in India.

New Regulatory Framework

The RBI proposes to review existing instructions on conduct-related matters associated with recovery agents and loan recovery processes. The central bank will issue harmonized instructions to address these concerns and strengthen customer protection measures across the financial sector.

Digital Fraud Prevention Initiatives

To combat digital frauds, the RBI continues collaborating with stakeholders, including the Ministry of Home Affairs, to develop operational measures for curbing digital and cyber-enabled fraud. The central bank has launched several key initiatives:

The report emphasized that regulated entities must establish robust internal controls, ensure sufficient grievance redress officers at all levels, and enhance digital financial literacy to address digital frauds effectively.

Updated Customer Protection Measures

The RBI is reviewing instructions related to limited liability of customers in unauthorized electronic banking transactions, originally issued in 2017. This review considers major shifts in the banking landscape, including:

• Emergence of new payment channels
• Higher volumes of digital transactions
• Evolving fraud patterns

These updates are expected to improve customer safeguards significantly.

Fraud Statistics

Based on reporting dates by banks, the total number of frauds decreased while the amount involved increased. This increase was primarily attributed to re-examination and fresh reporting of fraud cases after ensuring compliance with a Supreme Court judgment.

Future Policy Direction

The Reserve Bank stated that its regulatory and supervisory policies remain focused on reinforcing cybersecurity, mitigating fraud, enhancing customer protection, integrating climate risk awareness, and preserving financial stability. The central bank emphasized that balancing financial innovations with stability, strengthening public trust, and supporting sustainable development will continue guiding its policies going forward.

The report highlighted that frauds present multiple challenges by exposing financial institutions to reputational, operational, and business risks while weakening customer trust in the financial system.

The Reserve Bank of India (RBI) has directed microfinance institutions to closely monitor stress build-up on their books as the sector faces ongoing challenges from borrower over-leverage and regional policy measures. The directive comes amid a series of regulatory interventions impacting the microfinance industry, particularly in Karnataka and Tamil Nadu.

RBI Highlights Sector Challenges in Report

In its trend and progress in banking report, the RBI noted that disbursements were significantly lower in southern states. The central bank emphasized that regulated entities need to monitor the build-up of stress in the microfinance segment going forward.

The microfinance sector experienced considerable stress during the period, with most lenders recording credit contraction. The following table illustrates the sector's performance:

Industry Adopts Self-Regulatory Measures

Over recent quarters, lenders have faced significant challenges stemming from over-leverage among borrowers, prompting the industry to implement comprehensive guardrails. The self-regulatory organizations Microfinance Institutions Network (MFIN) and Sa-Dhan introduced measures prioritizing steady and calibrated growth in the sector.

Key industry measures include:

• Limiting the number of loans that can be given to a single borrower
• Implementing standardized lending practices
• Focusing on sustainable growth rather than rapid expansion

Self-Help Groups Show Positive Growth

Despite sector challenges, self-help groups (SHGs) demonstrated resilience with improved access to formal banking services. The number of SHGs accessing credit from banks increased to 55.6 lakh from 54.8 lakh in the previous year.

However, lower disbursements in the southern region led to moderation in the total amount of loans disbursed by banks to SHGs. Additionally, loans disbursed to joint liability groups (JLGs) declined by 58.00%.

Regulatory Framework Supports Long-term Growth

The RBI highlighted that its 2022 regulatory framework revisions for microfinance loans have laid the foundation for systemic and sustainable growth. The framework eliminated interest rate caps while introducing standardized rules, fostering social equity and empowerment as an effective instrument for advancing financial inclusion.

The central bank emphasized that these regulatory changes support the sector's role in promoting financial inclusion while ensuring sustainable lending practices. The framework aims to balance growth objectives with borrower protection and systemic stability in the microfinance ecosystem.