Legal Challenges in the Rise of Neobanks: Navigating Regulatory Hurdles for Digital-Only Banks in India

In India, digital-only banks without physical locations, known as neobanks, are quickly becoming important participants in the financial industry. However, their growth is blocked by substantial regulatory difficulties, including the absence of a typical banking license. The regulatory obstacles that neobanks encounter under the existing banking laws and regulations are examined in this paper, with a particular focus on their restricted capacity to provide a wide range of financial products and services directly to customers. The main goals are to determine and evaluate the regulatory obstacles that neobanks in India must overcome, look into the restrictions imposed by not having a banking license, and evaluate how the legal system safeguards customers with an emphasis on openness, grievance procedures, and fraud prevention. Neobanks face problems such as limited regulatory compliance, limited product options, and the need to establish consumer trust because they must collaborate with traditional banks to deliver some services. Because financial information is sensitive, they also need to handle cybersecurity and data protection issues. The goal of the research's output is to present a thorough grasp of these issues and provide insights into how the current legal system affects the operations of neobanks and consumer protection. In order to support the expansion of neobanks while maintaining financial stability and consumer safety, the study will also suggest possible regulatory changes.