RBI’s crackdown on mis-selling: What customers need to know
Feb 16, 2026
Synopsis
Tighter regulations on banks’ advertising, sales and marketing practices aim to curb the mis-selling of financial products such as insurance policies and mutual funds.
Which products are covered?
Regulated financial products such as insurance policies, mutual funds and National Pension System (NPS), among others, sold through bank branches.
RBI’s diktat for banks
• Agents selling inside bank branches must be clearly distinguishable from bank staff
• Banks must implement a sales code of conduct with penal action for violations
• Consent for multiple products/services must be obtained individually, not clubbed
• Banks must design user interface such that customers cannot grant consent without reading terms and conditions
• Banks cannot market third-party products as their own; agents cannot pose as bank employees
• Staff and agents cannot call or visit customers without prior consent
The mis-selling red flags
• Unsuitable products: Selling a product that doesn’t suit customer’s profile (age, income, financial literacy or risk appetite)
• Hidden clauses: Giving incomplete or misleading information
• No consent: Selling a service without clear acceptance from customers
• Compulsory bundling: Making extension of one offering (like a loan) contingent upon buying another (like an insurance policy)
• Deceptive design: Using ‘dark patterns’ to trick customers online
The ace in the pack
Banks will not be able to sell products that are not suitable or appropriate for customers’ profile even with their ‘explicit consent’. This blocks the escape routes for errant banks; they cannot use customers’ signatures in agreements to deny mis-selling claims.
Clear labelling
At times, bank relationship managers try to pass off unit-linked insurance policies (Ulips) as mutual funds to gullible customers. Now, banks may have to use separate application forms and prominently indicate the type of product (insurance, mutual fund, hybrid (insurance + investment) in their application forms.
Redressal routes
100% refund: In cases of proven mis-selling, banks may have to refund customers’ payment and cancel the transaction, besides additional compensation for financial losses.
Post-sale confirmations
The proposed rules require banks to collect customer feedback within 30 days of a sale through unbiased surveys.
Banks must prepare a half-yearly report on the findings to aid the review of existing policies and product/service constructs.
What customers must do
Lodge mis-selling complaints with the bank as per the relevant financial sector regulator’s timelines or within 30 days of receiving the signed agreement.
Note: These are draft guidelines issued by the RBI for public feedback. Final norms will be issued after stakeholder comments are reviewed and implemented from July 1.
[The Economic Times]
