RBI Cracks Down on Mis-Selling: New Guidelines for Banks and NBFCs

Union Finance Minister Nirmala Sitharaman has issued a stern warning to banks, emphasizing, "You cannot afford to mis-sell." Her comments came during a press conference following the routine post-Budget meeting with the Central Board of Directors of the Reserve Bank of India (RBI). Sitharaman expressed her approval of the RBI's initiative to offer guidance against mis-selling, underscoring that such practices will not be tolerated.

Highlighting the nuances of this issue, Sitharaman pointed out that the insurance regulator considers bank-led sales outside its jurisdiction, while the RBI views insurance as non-banking activity. This has left consumers, particularly individual deposit holders, in a precarious position. She noted frequent complaints from borrowers pressured into purchasing insurance when securing home loans, despite already offering property as collateral.

The RBI recently proposed comprehensive guidelines to regulate the advertising, marketing, and sale of financial products. These guidelines, covering a broad spectrum of regulated entities such as banks and NBFCs, aim to prevent mis-selling, compulsory bundling, and misleading digital practices. A notable feature is the clear prohibition of compulsory bundling, wherein offering one product is conditional upon purchasing another. To protect consumers, the RBI mandates refunding the entire amount and providing compensation if mis-selling is established.