The RBI adopts principle-based regulation to focus on consumer protection

The Reserve Bank of India is changing how it sets rules for banks and financial companies. The central bank is shifting towards a more flexible approach called “principle-based regulation.” This means giving general guidance to these entities instead of strict, detailed rules. It allows them to be more adaptable and innovative, but they’ll still need clear explanations.

The main focus of this approach is to protect customers and keep the financial system stable. There are two types of rules: one for stability and another for ethical behaviour.

Regulating businesses today is tricky because new companies often find ways to work in areas where the rules aren’t clear or take advantage of gaps in existing regulations. Regulators need to step in to protect customers and also want to encourage innovation, especially in the financial technology (FinTech) sector.

The RBI aims to create rules that look ahead, are based on risk, and treat everyone fairly. They’re committed to making sure these rules benefit the financial system and help it grow. They’ll need to strike a balance between protecting customers and allowing FinTech innovation to thrive.