Reserve Bank of India (RBI) has announced plans to issue fresh guidelines aimed at curbing mis-selling of financial products and services by regulated entities (REs), including banks and non-banking financial companies (NBFCs). The initiative comes amid growing concerns over unethical practices where consumers are misled or coerced into buying products, they neither need nor fully understand.
According to the RBI’s annual report for 2024–25, the central bank has acknowledged the need for “suitable guidelines to address mis-selling of financial products and services by REs—their own as well as third-party offerings.”
The upcoming regulatory framework is expected to cover aspects such as product suitability, customer disclosure, and the roles and responsibilities of REs while distributing third-party financial products like insurance or investment schemes, the central bank says.
Mis-selling has remained a persistent issue in India’s financial landscape, particularly as banks and NBFCs increasingly act as intermediaries for third-party products. In many cases, customers, especially senior citizens or rural borrowers, have been pressured into signing up for services that are unsuitable or carry hidden charges. RBI's move aims to enforce greater transparency and accountability in such transactions.
During FY24-25, the central bank says, the office of RBI Ombudsman (ORBIOs) received 296,000 complaints, compared to 293,000 complaints during FY23-24, showing a marginal increase. "Complaints were mainly received against banks, followed by NBFCs, non-bank system participants and credit information companies (CICs). The majority of these complaints pertain to loans and advances and digital banking products."
According to RBI, for FY25-26, its consumer education and protection department (CEPD) has identified three goals. It includes, "review of Reserve Bank-Integrated Ombudsman Scheme, 2021, including consumer education and protection cells, centralised receipt and processing centre and contact centre (Utkarsh 2.0), issuance of master direction on grievance redressal framework in REs and improve the complaint management system to better support the lodging of complaints and ensure greater consistency in decisions and outcomes."
While RBI did not disclose a timeline for the release of the guidelines, the annual report indicated that the draft is under preparation and will likely follow the standard route of public consultation before being finalised.
As repeatedly pointed out by
Moneylife, banks are hotbeds of mis-selling third-party products, mainly traditional insurance. We have come across innumerable cases where the banker encourages savers to put money from matured FDs into a traditional life insurance product, rather than renew the bank FD, because selling insurance earns them a hefty commission. Even public sector banks (PSBs) have high targets for selling insurance to boost their profits. (
Read: Now, Bank FDs Sahi Hai!)
As pointed out by
Moneylife in 2018, the mis-selling of insurance policies by banks (bancassurance channel) is on the rise, thanks to high commissions and business links. Several banks have invested in life insurance companies and, hence, there is a push for selling policies to bank customers. However, bank officers are now demanding that top management be restricted from setting targets for bank employees to cross-sell insurance products to customers. (
Read: Insurance Cross Selling: Bank Officers Want Restriction on Targets, Pressure for Sales)
After receiving numerous such complaints about banks cross-selling risky investment products, many of which are from senior citizens, in April 2013, Moneylife Foundation took up this issue with RBI. The memorandum asked RBI to free the system of mis-selling of financial products by bankers, misusing the savers' trust. (
Read: Moneylife Foundation memorandum to RBI on mis-selling by banks)
Despite our efforts for the past several years, we have seen very little evidence on the ground of concrete action by the regulator to prevent institutionalised mis-selling of insurance and hybrid derivatives or to punish even egregious cases of unfair treatment of consumers.
