RBI readying strong norms to prevent mis-selling of financial products

The Reserve Bank of India (RBI) is in the process of formulating strict guidelines to discourage lenders from mis-selling, and to hold them accountable for all products they are offering, according to a senior RBI official.

''From the principle of 'caveat emptor' [buyer beware], we have to move to the principle 'caveat venditor', Latin for 'seller beware.' We are going to have the principle of caveat venditor and are going to formulate the codes for it,'' RBI executive director Deepali Pant Joshi said while addressing the annual conference of the Banking Codes and Standards Board of India (BCSBI) in Mumbai on Tuesday.

The current system of regulations that governs the sale of financial products and services are based on the caveat emptor as a doctrine, said Joshi, who handles the departments of customer service, rural planning and credit at India's central bank.

The recent Nachiket Mor panel report on 'Comprehensive financial services for small businesses and low-income households' had said that the caveat emptor principle had led to fundamental flaws in the customer protection architecture and had created large welfare losses for customers, she pointed out.

The caveat venditor principle was the answer, Joshi said.