RBI’s Responsible Business Conduct Second Amendment Directions, 2026

Source: Business Standard

Context

The Reserve Bank of India (RBI) has tightened rules governing the sale of financial products by banks and other regulated entities. The final Responsible Business Conduct (Second Amendment) Directions, 2026 were released on 15 June 2026 and will come into effect from 1 January 2027. The amendments ban compulsory bundling of third-party products, mandate explicit customer consent, introduce a full refund mechanism for mis-selling, ban dark patterns in digital interfaces, expand the agent regulation scope to DSAs, DMAs, sub-agents, and TPPS representatives, and require upfront disclosure of fees, risks, lock-ins, and exit penalties. The framework also allows NBFCs to distribute insurance products without prior RBI approval, subject to IRDAI nod. This is a major shift to a prescriptive regulatory regime focused on customer protection.

Ban on Compulsory Bundling

• Banks shall NOT resort to compulsory bundling of any third-party product or service (TPPS) with their own products or services.
• Where a third-party product is required as a risk mitigation tool, customers must have the freedom to choose any TPPS provider.
• Common practice targeted: Banks insisting on home loan borrowers buying life insurance from a subsidiary or JV partner.
• Banks cannot fund the purchase of any product or service through a loan facility without explicit consent.

Explicit Consent Protocol

• Banks must obtain explicit customer consent for every product or service sold.
• Approved modes include:
  • Signed declarations (physical or electronic).
  • One-time password (OTP)-based approvals.
  • Digitally recorded confirmations.
  • Clearly demarcated agreement clauses.
• Multi-product forms: Customers must have the option to choose only the products they want.
• Interfaces must default to “No” or “I do not agree”, forcing conscious opt-in.
• Banks must retain consent records for 1 year after contract end.

Mis-Selling Definition and Compensation

• Mis-selling is defined as the sale of a product or service:
  • Without explicit consent.
  • Without correct or complete information.
  • By giving misleading information.
• Compensation mechanism:
  • Bank must refund the entire amount paid by the customer.
  • Bank must compensate for any loss arising due to mis-selling, as per its approved policy.
• Customers may file mis-selling complaints within RBI-set timelines or 30 days of receiving signed agreements.

No Employee Incentives From Third Parties

• Bank employees must not directly or indirectly receive any incentive from the third-party service provider.
• Closes the loophole of kickback-driven mis-selling.

Customer Feedback Mechanism

• Banks must establish mechanisms to seek customer feedback within 30 days of the sale of a financial product.
• To assess whether customers understood the features and associated risks.

Mandatory Upfront Disclosures

Banks must clearly inform customers about:

• Interest rates.
• Fees and charges.
• Risks.
• Lock-in conditions.
• Exit penalties.

These must be disclosed BEFORE obtaining consent.

Ban on Dark Patterns

• Dark patterns are defined as practices designed to mislead or trick users into doing something they did not intend.
• Banks and direct selling agents are banned from deploying such interfaces.
• Banks must periodically audit their digital platforms.

What is the Responsible Business Conduct Framework?

• A regulatory framework by the RBI for ethical conduct in financial product sales.
• Aligns with global standards like the G20/OECD High-Level Principles on Financial Consumer Protection (2011).
• First Master Directions issued earlier; this is the Second Amendment.

What is a Bundled Product?

• Multiple products or services sold together as a package.
• Examples in banking:
  • Home loan + life insurance.
  • Car loan + motor insurance.
  • Personal loan + critical illness cover.
• Compulsory bundling is anti-competitive and can lead to mis-selling.

What is a Third-Party Product or Service (TPPS)?

• A product or service that is not the bank’s primary offering but is distributed by the bank on behalf of another company.
• Common TPPS: Insurance, mutual funds, structured products, gold coins, government bonds.

What is Mis-Selling?

• The sale of a product or service:
  • Without explicit consent.
  • Without proper disclosure.
  • With misleading information.
• Often happens when incentive structures push agents to mis-represent products.
• Common in: ULIPs sold as investment products, endowment policies sold as fixed deposits, mutual funds with hidden risks.

What are Dark Patterns?

• Manipulative design interfaces that trick users into doing things they did not intend.
• CCPA (Central Consumer Protection Authority) had banned 13 specific dark patterns in November 2023 under the Consumer Protection Act, 2019.
• Now RBI has extended this to financial services.

India’s Financial Consumer Protection Architecture

• RBI Ombudsman Scheme: For banking-related complaints.
• SEBI’s SCORES (Complaints Redress System): For capital markets complaints.
• IRDAI’s Grievance Mechanism: For insurance complaints.
• CCPA (Central Consumer Protection Authority): For unfair trade practices and dark patterns under the Consumer Protection Act, 2019.
• NCDRC (National Consumer Disputes Redressal Commission): For consumer disputes.
• DICGC: For bank deposit insurance (up to ₹5 lakh per depositor per bank).

Allied Recent RBI Reforms

• Digital Lending Guidelines (2022): For regulating digital lenders and LSPs.
• Master Direction on KYC: Updated norms for customer identification.
• Master Direction on Outsourcing: For bank outsourcing of non-core activities.
• CIMS (Centralised Information Management System): For regulatory reporting.

Practice MCQs

Q1. With reference to the RBI’s Responsible Business Conduct (Second Amendment) Directions, 2026, consider the following statements:

1. The directions were released on 15 June 2026 and will take effect from 1 January 2027.
2. The directions ban compulsory bundling of third-party products with banks’ own offerings.
3. Banks must mandatorily obtain explicit customer consent before selling any product or service.
4. The directions allow banks to use dark patterns and manipulative digital interfaces.

How many of the above statements are correct?

(a) Only one (b) Only two (c) Only three (d) All four (e) None

(Statement 4 is wrong; the directions explicitly BAN dark patterns and manipulative interfaces.)

Q2. With reference to the mis-selling and compensation mechanism under the new RBI framework, consider the following statements:

1. Mis-selling is defined as the sale of a product or service without explicit consent, without correct information, or with misleading information.
2. Banks must refund the entire amount paid by the customer if mis-selling is established.
3. Banks must compensate the customer for any loss arising due to mis-selling, as per their approved policy.
4. Banks must seek customer feedback within 30 days of the sale to assess understanding of features and risks.

How many of the above statements are correct?

(a) Only one (b) Only two (c) Only three (d) All four (e) None

Q3. With reference to the dark patterns banned by the RBI’s framework, consider the following statements:

1. Basket sneaking involves adding items to a customer’s basket without consent.
2. Subscription traps make it easy to subscribe but difficult to unsubscribe.
3. Drip pricing hides the full price until the final stages of purchase.
4. Confirm shaming uses emotionally manipulative language to make users feel guilty for opting out.

How many of the above statements are correct?

(a) Only one (b) Only two (c) Only three (d) All four (e) None

Q4. With reference to the expanded agent scope under the new RBI framework, consider the following statements:

1. Banks must publicly disclose the Direct Selling Agents (DSAs) and Direct Marketing Agents (DMAs) engaged by them.
2. Sub-agents and TPPS representatives in bank premises must be distinguishable from bank employees through clear on-person identification.
3. Bank agents must not falsely present themselves as bank employees.
4. The agent regulation applies only to direct bank employees, not to BCs, LSPs, or sub-agents.

Which of the above are correct?

(a) 1, 2 and 3 only (b) 1, 3 and 4 only (c) 2 and 4 only (d) 1 and 4 only (e) All four

(Statement 4 is wrong; the agent regulation has been WIDENED to cover BCs, LSPs, sub-agents, and TPPS representatives.)

Q5. With reference to NBFCs and insurance distribution under the new framework, consider the following statements:

1. NBFCs may distribute insurance products without prior RBI approval.
2. NBFCs still require IRDAI’s approval for insurance distribution.
3. Banks can continue to act as insurance brokers department-wise.
4. NBFCs are regulated by the Securities and Exchange Board of India (SEBI).

Which of the above are correct?

(a) 1, 2 and 3 only (b) 1, 3 and 4 only (c) 2 and 4 only (d) 1 and 4 only (e) All four

(Statement 4 is wrong; NBFCs are regulated by the RBI, NOT SEBI.)

Answer Key

1. (c), Statements 1, 2, 3 are correct; Statement 4 is wrong because the directions explicitly ban dark patterns.
2. (d), All four statements are correct.
3. (d), All four statements are correct.
4. (a), Statements 1, 2, 3 are correct; Statement 4 is wrong because agent regulation has been widened to cover BCs, LSPs, and sub-agents.
5. (a), Statements 1, 2, 3 are correct; Statement 4 is wrong because NBFCs are regulated by the RBI.

Exam Relevance

Banking (RBI Gr B, SBI PO, IBPS, NABARD)	Very high importance, RBI norms, mis-selling, BC, LSP, DSA, dark patterns, bundling
RBI Grade B	Core area on banking regulation and consumer protection