RBI Cracks Down on Mis-selling: New Rules for Banks & NBFCs to Protect Customers

The RBI said it has decided to introduce comprehensive guidelines covering advertising, marketing and sales practices for all banks and NBFCs. The proposed framework will also apply to third-party financial products and services.

The draft amendments, issued pursuant to the announcement made in the Monetary Policy Committee (MPC) meeting, seek to modify existing "Responsible Business Conduct" directions across a wide range of regulated entities. These include commercial banks, small finance banks, payments banks, local area banks, regional rural banks, urban and rural co-operative banks, All India Financial Institutions, NBFCs, and housing finance companies.

The draft amendment directions aim at strengthening customer protection norms and curbing mis-selling, compulsory bundling, and deceptive digital practices.

A key highlight of the draft directions is a clear prohibition on "compulsory bundling," defined as making the availability of one product or service conditional upon the purchase of another, whether offered by the bank itself or a third party.

The RBI has also introduced a detailed definition of "mis-selling," covering instances such as selling products unsuitable for a customer's profile, providing misleading or incomplete information, selling products without explicit consent, and forcing bundled purchases.

In cases where mis-selling is established, banks will be required to refund the entire amount paid by the customer and compensate for any loss arising from the transaction, it said.

The draft mandates that banks obtain explicit consent, defined as a specific, informed, and unambiguous indication of agreement before selling any product or service.

It mentioned that the consent for multiple products cannot be clubbed together, and user interfaces must ensure customers review applicable terms and conditions before granting consent.

Further, banks cannot fund the purchase of products from loan proceeds without explicit consent.

In a significant move targeting digital conduct, the RBI has formally defined and prohibited the use of "dark patterns", deceptive user interface designs that mislead or trick customers into unintended actions.

The RBI has also introduced detailed norms governing Direct Selling Agents (DSAs) and Direct Marketing Agents (DMAs).

Further, telemarketing calls or visits must generally be made between 9:00 a.m. and 6:00 p.m., unless specifically authorized by the customer, the RBI draft guidelines said.

The comments/feedback on the draft Amendment Directions may be submitted by the regulated entities and members of public/other stakeholders on or before March 4, 2026, RBI said in its press release.

- ANI