Dinesh Kumar Khara says RBI’s new guidelines strike a balance between customer protection and growth

New regulatory steps by the Reserve Bank of India will change the way banks sell financial products, finance acquisitions and lend to market intermediaries. In an interview with ET Now, Dinesh Kumar Khara, former chairman of SBI, shared his views on the implications.Misselling standards indicate stricter scrutiny

Khara said concerns about misselling have been growing for years, with regulators intervening to boost confidence.”When it comes to mis-selling, this was something that has been brewing for a while… banking is a matter of trust… unless it sells well, there could be a challenge. Banks had introduced needs assessment, de-linked incentives from sales targets and looked at persistence ratios. But now RBI has clearly defined mis-selling and even indicated that it could impact licensing… punitive measures are very stringent… it is a clear reflection of the regulator’s intentions.”

He added that while the financial impact may be limited, customer experience and trust are critical.

Refund rules may require careful implementation
On proposals such as refunds and compensation, Khara emphasized both safeguards and operational realities.

“Even now, there is a free look period of about 30 days… insurance is a push product… needs assessment is important. RBI has even said this may impact licensing. Bundling practices will have to change… recordings and documentation can help verify claims. The intention is welcome, but the implementation may need to be tweaked.”M&A financing a welcome structural change
Khara described the new takeover financing standards as a positive shift that could keep deals within the domestic banking system.

“M&A financing has been introduced for the first time… opportunities were previously financed by foreign banks. The latest instructions are more relaxed… unlisted acquisitions are allowed and leverage can be refinanced… very pragmatic steps and a welcome step.”

Rules for broker financing aimed at curbing speculation
On stricter standards for broker financing, he said the focus is on curbing speculative excesses.

“The intent is to curtail speculative trading fueled by liberal financing… reducing exposure and increasing cash collateral will ensure appropriate financing, while keeping market making and working capital funded.”

The takeaway
The regulatory direction underlines stronger customer protection alongside deeper development of financial markets. It will be crucial for banks and financial companies to quickly adapt to stricter behavioral standards while taking advantage of new financing opportunities.