Misselling: Banks must refund and compensate customers, says RBI

Banks cannot resort to shady patterns such as fake countdown timers to force quick decisions, nor withdraw additional items such as products/services, charity payments or donations at the time of checkout from a platform, without user consent | Photo credit:

If there is a mis-sell, the banks must refund the full amount paid by the customer for the purchase of the product/service. They must also compensate customers for any losses resulting from misselling. Before a financial product/service is marketed/sold to a particular customer, its suitability for the customer must be determined by the bank.

This will be based on an analysis of the characteristics, risk-return characteristics, time horizon, complexity, fee structure in relation to the customer’s age, income, level of financial literacy and risk tolerance. Banks must ensure that their policies and practices do not create incentives for mis-selling nor encourage employees/DSAs (Direct Selling Agents) to drive sales of products/services.

Also, banks cannot resort to shady patterns such as fake countdown timers to force quick decisions, nor withdraw additional items such as products/services, charity payments or donations at the time of checkout from a platform, without the user’s consent.

Banks are held liable for the third parties they work with. For the benefit of customers, any agent of the bank, or representative of a third party, who is present on the bank’s premises for the sale of a product/service of the bank itself or of third parties, must be distinguishable from the bank’s employees, including clear personal identification.

code of conduct

A bank shall, based on the instructions stated in these Instructions, draw up a code of conduct for the marketing and sale of financial products/services, which shall apply to the bank’s own employees and to DSAs / DMAs (direct marketing agents).

Meanwhile, the central bank said a bank can only deal with regulated financial products and services in which a bank is allowed to deal. A bank can, at its own discretion, act as an insurance broker under certain conditions. per Draft Reserve Bank of India (Commercial Banks – Undertaking of Financial Services) Amendment Directions, 2026, which will come into effect from April 1.

Banks can perform agencies on a fee basis, without any risk participation. This will be expressly announced to the customers in advance. They must ensure that the third party product and service providers (TPPSP), whose products are sold, have robust arrangements for resolving customer complaints. The bank can facilitate the handling of complaints.

Only for regulated financial products and services (with the exception of insurance), banks may refer their customers to a TPPSP under the conditions.

They may only collect a one-time fee from the TPPSP at the time they refer their customers. Under the referral scheme, the bank is not allowed to collect any other income stream/fee or commission in any form.

Published on February 11, 2026