RBI Proposes Compensation for Customers up to Rs 25,000 in Small Fraud Losses

The Reserve Bank of India  (RBI) on Friday unveiled a wide-ranging set of measures designed to enhance customer protection, boost financial inclusion, expand credit access, strengthen urban cooperative banks (UCBs), simplify compliance for non-banking financial companies (NBFCs), and further develop financial markets.

RBI Governor Sanjay Malhotra outlined the initiatives during the monetary policy statement, emphasising the central bank's commitment to both safeguarding consumers and enabling growth in key sectors of the economy.
Customer Protection and Digital Payments

To enhance safeguards for banking customers, the RBI proposed three draft guidelines targeting the mis-selling of financial products, regulating loan recovery practices and including the use of recovery agents and capping customer liability for unauthorised electronic banking transactions.

 The RBI has proposed a framework to reimburse customers for losses from small-value fraudulent transactions, with a maximum compensation of Rs 25,000. The central bank will also release a discussion paper outlining new measures to strengthen digital payment security, including enhanced authentication and delayed credit features for vulnerable groups, such as senior citizens.

Financial Inclusion Initiatives

As part of its push for financial inclusion, the RBI has carried out a comprehensive review of the Lead Bank Scheme (LBS), the Kisan Credit Card scheme, and the Business Correspondent model. Draft guidelines for the updated programs are expected shortly, along with a unified reporting portal to streamline LBS data management and monitoring.

Boosting Credit to MSMEs and Real Estate

To improve credit availability for small businesses, the RBI proposed raising the limit for collateral-free loans to micro, small, and medium enterprises (MSMEs) from Rs 10 lakh to Rs 20 lakh. The central bank also announced that banks will now be permitted to lend to Real Estate Investment Trusts (REITs), subject to prudential safeguards

Strengthening Urban Cooperative Banks

Malhotra highlighted a series of steps to reinforce urban cooperative banks. The RBI plans to raise financial limits for unsecured loans and loans to nominal members, and remove tenure and moratorium restrictions on housing loans offered by tier III and Tier IV UCBs.

Additionally, the RBI Launch Mission SAKSHAM (Sahakari Bank Kshamta Nirman), a capacity-building initiative aimed at training over 1.4 lakh participants to enhance managerial and technical expertise within the cooperative banking sector.

For non-banking financial companies, the RBI did not announce exemptions for entities that handle public funds nor have a customer interface, with assets under Rs 1,000 crore, from mandatory registration. Certain NBFCs will also no longer need prior approval to expand beyond 1,000 branches.

Also Read: RBI Keeps Repo Rate Unchanged at 5.25% Amid Steady Inflation and GDP Growth