New mis-selling norms soon, capital & provision rules deferred

Mumbai: The RBI has announced that it will introduce new guidelines to address mis-selling and forced selling of insurance. Additionally, it has granted regulatory relief to banks by postponing proposed regulations on liquidity requirements, provisions for potential defaults, and rules concerning subsidiaries. Instead, the RBI will adopt a consultative approach before implementing these regulations.

In his first post-policy conference on Friday, RBI Governor Sanjay Malhotra provided an assurance that norms requiring banks to hold more liquid funds and provisions for project finance will not be implemented before March 2026. “There are trade-offs between stability and efficiency. We will keep this trade-off in mind while formulating regulations. It will be our attempt to strike the right balance, keeping in view the benefits and costs of each and every regulation,” said Malhotra.

The governor said that the proposed norms seeking to increase the liquidity coverage ratio were introduced globally following the 2023 run on some U.S. banks. These banks were not subject to regulations on liquidity coverage. “While we already have these regulations in place, we continuously assess whether our liquidity provisions are adequate and need improvement. This is why the draft regulations propose additional liquidity requirements for certain deposits with a higher likelihood of runoff. At the same time, we have received feedback suggesting that lower liquidity requirements may be appropriate for some deposits, and we are examining those inputs,” said Malhotra.

He said that while the norms on subsidiaries are in place, the central bank has received comments. “If a bank does the same business that is being done through a subsidiary, it raises two issues: conflict of interest and regulatory arbitrage,” said Malhotra. However, there were banks with subsidiaries that were a legacy issue, as the RBI had permitted them earlier. In such cases, the RBI was taking a consultative approach, keeping in mind the interests of depositors, lenders, and promoters.

The governor also said that the RBI takes a strong view on mis-selling and would take action if there are any instances of mis-selling. “The guidelines are already in place for mis-selling and forced selling of insurance. We are comprehensively reviewing these guidelines and should come up with new guidelines shortly in this area,” said M. Rajeshwar Rao, Deputy Governor, RBI.