MUMBAI: The Reserve Bank of India (RBI) has significantly strengthened norms on mis-selling, removing a key defence often used by banks and insurance companies — that customers had given consent by signing documents. Under the new framework, regulated entities will be required to issue full refunds in cases where mis-selling is established.
In its Draft Commercial Banks Responsible Business Conduct (Amendment) Directions, 2026, the central bank has expanded the definition of mis-selling to include the sale of products or services that are unsuitable for a customer’s profile, including age, income level, and risk appetite — even if explicit consent was provided.
For the first time, the RBI has also defined “dark patterns” in financial sales. These refer to deceptive digital designs that mislead customers into taking unintended actions by limiting their freedom of choice. Such practices may amount to misleading advertising, unfair trade conduct, or violations of consumer rights.
For years, banks and insurers have followed a buyer-beware approach, often relying on signed documents and confirmation calls to defend themselves in disputes. This was particularly common in cases involving complex insurance and investment products sold to senior citizens.
By clarifying that customer consent does not legitimise an unsuitable sale, the RBI has reinforced the principle of utmost good faith. Banks will now be held accountable for ensuring that products are appropriate for customers, rather than acting merely as commission-driven distributors.
The central bank has also directed regulated entities to put in place formal compensation policies, including provisions for full refunds in confirmed cases of mis-selling.
The draft rules further prohibit compulsory bundling, making it clear that loan approvals cannot be linked to the purchase of insurance or other financial products.
In addition, oversight of third-party agents has been tightened. Banks will be required to publish updated lists of Direct Selling Agents on their websites and ensure that agents operating within branches are clearly identifiable and distinct from bank employees.
Industry executives said the new norms, scheduled to come into effect from July 1, 2026, are expected to bring about a major overhaul in how insurance and investment products are sold through bank branches, with greater emphasis on transparency and customer protection.
