It marks a shift towards greater bank accountability and public participation in financial regulation. (Image: File)
In a landmark move for consumer protection, the Reserve Bank of India (RBI) has unveiled a comprehensive set of proposed banking reforms under 'Draft 238'. For the first time, the central bank is actively seeking public feedback on such wide-ranging regulatory changes until November 10. The importance was underlined by former RBI Governor R. Gandhi, who said, "This is the first time a draft has been presented soliciting public input about regulatory reforms." If approved, these regulations would radically alter bank responsibility and consumer rights starting in 2026.
The draft tackles some of the most common customer grievances head-on. In a major shift, banks will be held directly responsible for cyber fraud if they fail to act on a customer's report. Customers will have a three-day window to alert their bank; a bank's inaction could lead to a fine of ₹25,000. The time of no responsibility for bank lockers may be over. The RBI has suggested that if items are stolen, damaged, or lost, banks should repay customers up to 100 times the yearly locker fee, making banks clearly responsible for the safety of valuables.
The proposed rules aim to demystify borrowing and make it more fair. The removal of prepayment penalties for all loan types—not just retail, is a huge benefit for all borrowers. This allows customers to close loans early without extra charges. Furthermore, banks will be mandated to provide clear, upfront details about all interest rates, fees, and penalties. To prevent confusion, a unified formula for calculating interest will be applied across all banks. The loan-to-value ratio is tightened for home loans over ₹20 lakh, requiring a larger down payment and encouraging more responsible borrowing.
The reforms extend into several other critical areas. The KYC process is being made simpler and more risk-based. Low-risk customers will only need to update their KYC once every ten years. Banks must handle the process themselves—no third-party agents—to keep data safe. For people aged 70 and above, banks will have to offer doorstep services. Also, seized properties by government agencies will be listed on an official website with monthly updates, and private bank employees will now have to declare their assets.
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This consultation process marks a new chapter in Indian banking regulation. The RBI is allowing citizens to participate in financial rule-making by asking for public opinion. The draft proposes that banks must return loan papers within 30 days of repayment, or face a ₹5,000 daily fine for delays. It also simplifies the process for customers to get back unclaimed money. To prevent scams, banks will now block transactions related to lotteries and chit funds.
