Source: FE
Context:
The Reserve Bank of India (RBI) has issued draft and final guidelines aimed at curbing mis-selling of financial products and tightening broker funding norms. Analysts say these measures could dent banks’ fee income—especially from bancassurance and capital market-related activities.
What Do the New Mis-Selling Guidelines Propose?
The new norms aim to:
- Curb bundled sales (forcing customers to buy insurance with loans/savings products).
- Eliminate dark patterns (misleading digital interface practices).
- Ensure product suitability and appropriateness.
- Mandate clear consent from borrowers.
- Provide compensation for mis-selling incidents.
Key Change:
Banks cannot bundle third-party products with their own offerings.
Likely Impact:
- Reduced cross-selling commissions
- Lower fee income, especially for large private banks
- Short-term hit expected; long-term impact may be moderate due to low insurance penetration.
Tighter Broker Funding Norms
RBI’s final guidelines (issued February 13) tighten exposure to stock brokers.
Key Provisions:
- No funding for brokers’ proprietary trading (except limited market-making).
- 100% collateral requirement for most exposures.
- Bank guarantees must be backed by:
- At least 50% collateral
- Minimum 25% in cash
Banks typically charge 50–100 basis points annually on bank guarantees. Reduced reliance on guarantees may lower fee income.
Capital Market Exposure Cap:
- Limited to 20% of banks’ net worth.
- Analysts say overall exposure is not large, so impact may be contained.
