RBI Governor Sanjay Malhotra warns against overzealous financial regulations
Mumbai: Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday cautioned against regulatory measures that could inadvertently hinder financial inclusion. Speaking at a Financial Action Task Force (FATF) event, Malhotra underscored the importance of ensuring regulations do not create unnecessary obstacles for individuals and businesses.
“It must be ensured that regulations do not create unintended barriers to financial inclusion. We need to be mindful of customer rights and convenience while fulfilling due diligence requirements,” Malhotra stated. He highlighted India’s significant progress in this sector, noting that 94 per cent of adults now have bank accounts. The governor stressed that while strengthening financial systems against illicit activities such as money laundering and terrorism financing is crucial, regulators must avoid excessive measures that could restrict legitimate transactions. “We as policymakers need to be mindful that our measures are not overzealous and do not stifle legitimate activities and investments,” he said.
Malhotra called for a balanced approach, suggesting that regulatory frameworks should be precise and targeted. “The laws and regulations should focus solely on illegitimate and illicit activities with surgical precision and not act as blunt instruments that unintentionally impact honest individuals,” he remarked.
Addressing the role of technology, Malhotra acknowledged its dual nature. “While technology has facilitated ease of doing business, it has also given rise to sophisticated methods of illicit financing. We are determined to further strengthen our financial system to deter and combat such activities,” he said.
He also pointed out the need for better coordination among stakeholders to eliminate redundant processes like repeated Know Your Customer (KYC) verifications.
Furthermore, Malhotra suggested that the implementation of the travel rule—requiring financial institutions and Virtual Asset Service Providers (VASPs) to share transaction details—should remain technology-neutral. Discussions at the ongoing FATF seminar, he added, will aid India in implementing its new privacy law more effectively.
