RBI cracks down on mis-selling, issues rules for banks on sales, marketing

The Reserve Bank of India (RBI) has issued comprehensive draft instructions aimed at curbing mis-selling of financial products by commercial banks, tightening norms on advertising, marketing and sales practices, and introducing clear safeguards for customers.

The move follows concerns flagged by the central bank in its monetary policy last week, where it said that it has felt the need to ensure that third party products and services that are being sold at the bank counters are suitable to customer needs and are commensurate with the risk appetite of individual clients and in that regard it would issue comprehensive instructions to regulated entities on advertising, marketing and sales of financial products and services.

On Wednesday, the RBI released draft regulations for commercial banks on responsible business conduct. Comments on the draft directions could be submitted by regulated entities on or before 4 March, and the new regulations will come into effect from 1 July.

The draft guidelines introduces a clear definition of ‘mis-selling,’ covering cases such as selling products that are unsuitable for a customer’s profile, providing misleading or incomplete information, selling without ‘explicit consent,’ and forcing customers into ‘compulsory bundling’ of products.

Importantly, the RBI has defined explicit consent as a specific, informed and unambiguous indication of agreement, which must be recorded by the bank. Consent for multiple products cannot be clubbed together and must be obtained separately, RBI said.

The central bank has also taken aim at dark patterns—deceptive digital design practices that nudge or trick users into making unintended choices. Banks have been directed to ensure that their websites and apps do not deploy such tactics and to subject user interfaces to periodic audits. An illustrative list includes practices such as false urgency, hidden charges, pre-ticked consent boxes, and difficult subscription cancellations.

Banks will now be required to put in place a comprehensive board-approved policy covering suitability assessments, customer feedback mechanisms, and compensation in cases of mis-selling. They must determine whether a product is appropriate for a customer based on factors such as age, income, financial literacy and risk tolerance.

The draft also lays down strict rules for Direct Selling Agents (DSAs) and Direct Marketing Agents (DMAs). Banks must maintain and publish an updated list of such agents, ensure they are properly trained and certified, and make them clearly distinguishable from bank staff when operating within bank premises.

Further, the RBI has barred banks from bundling third-party products with their own offerings and from funding product purchases through loans without explicit consent. Incentive structures that encourage aggressive selling have also been discouraged.

To strengthen accountability, banks must seek customer feedback within 30 days of a sale and prepare half-yearly reports on findings. If mis-selling is established, banks must refund the entire amount paid and compensate customers for any loss.