Misselling and Microfinance: RBI Deputy Governor’s Warning
Why in the news
Speaking on financial inclusion at a function hosted by HSBC, M. Rajeshwar Rao, a Deputy Governor of the RBI, cautioned lenders over product misselling and microfinance conduct. The RBI website later carried the text.
Key issues
| Issue | Concern |
|---|---|
| Misselling | Pushing products like insurance without checking suitability; can erode trust in welfare safety nets |
| Pricing | Private banks and SFBs charge high margins despite cheap funds |
| Over-indebtedness | Cycle of debt, coercive recovery and distress |
- RBI is examining fresh guidelines on misselling by banks and NBFCs.
RBI’s prescription
- Stronger credit appraisal to avoid over-leveraging.
- No coercive or unethical recovery; ethical, sustainable service.
- Inclusion must not cost consumer protection and dignity.
- Institutions should review incentives and move from a high-yield mindset to an empathetic one.
Likely regulatory steps
- Norms against misselling; fresh look at rate transparency; mandatory grievance redressal.
Exam angle
- Speaker: Deputy Governor M. Rajeshwar Rao.