Banks Must Refund Customers for Misselling Under RBI’s New Draft Rules

The Reserve Bank of India (RBI) has proposed draft guidelines directing banks to fully refund customers if financial products or services are found to have been mis-sold. The move aims to strengthen consumer protection and ensure financial products offered through banks align with customer needs and risk profiles.

Under the proposed framework, banks must refund the entire amount paid by customers and cancel the sale where applicable. In addition, customers must also be compensated for any financial loss resulting from mis-selling.

What Counts as Misselling?

According to RBI’s draft norms, mis-selling includes offering products that are unsuitable for a customer’s financial profile, even if consent was obtained without proper disclosure. It also includes providing misleading or incomplete information, selling products without explicit customer consent, or bundling products without clarity or necessity.

The guidelines come after concerns that third-party financial products sold at bank branches are sometimes not suited to individual customer risk tolerance or financial literacy levels.

New Responsibilities for Banks

Banks will now be required to assess product suitability before marketing or selling financial services. Factors such as customer income, financial knowledge, risk appetite, investment horizon, and product complexity must be evaluated.

The draft rules also prohibit banks from funding product purchases through loans without explicit consent. Additionally, banks must avoid using “dark patterns” in digital interfaces, such as false urgency or hidden cancellation options, that mislead customers.

To reduce mis-selling pressure, banks must ensure sales incentives or internal targets do not encourage employees or agents to push unsuitable products. Employees engaged in selling third-party products must not receive incentives from external providers.

Complaint and Implementation Timeline

Customers can lodge complaints regarding mis-selling within timelines specified by regulators or within 30 days if no timeline exists. Public feedback on the draft guidelines has been invited until March 4, with implementation likely from July 1.

Also Read: RBI Cancels Certificates of Registration for 7 NBFCs!

Conclusion

The RBI’s proposed measures mark a significant step toward improving transparency and accountability in banking sales practices. By enforcing product suitability checks and mandating refunds in mis-selling cases, the framework seeks to restore customer trust and ensure fair treatment in financial product distribution.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a private recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.