“It [RBI] is actually not prohibiting, but only saying that the right practices should be followed by banks when it comes to selling third party or insurance products, and there should not be any bundling… what it really calls for is that there should be right assessment and showcasing of the product. And if it is not mis-selling, there is no restriction,” he said.
Khara added, that banks may lose some bundled income but not all revenue, and the rules also specify that if mis-selling is proven, premiums must be refunded and there could be impact on license also.
The Reserve Bank of India (RBI) on February 11 proposed strict new rules on how banks sell financial products such as insurance, pensions and mutual funds. The RBI move aims to stop forced bundling and mis-selling, and to ensure that products are suitable for customers.
The draft guidelines say banks cannot force customers to buy insurance while taking a loan or opening an account. They must assess the customer’s risk profile and clearly explain the product. If mis-selling is proven, the premium may have to be refunded and there could be further action.
Khara pointed out that many large banks have already reduced bundling and improved customer profiling over the past few years. The new RBI norms go a step further by clearly defining mis-selling and specifying penalties. He believes banks, insurers and regulators will work together to protect customer trust, which is key for long-term growth.
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For insurance companies, the impact could be more visible in the short term, especially for those heavily dependent on bancassurance. Nilesh Sathe, Former Member of IRDAI said some insurers may see sales dip initially. “Few of the insurance companies which have greater bank assurance business, they will get impacted initially, but then I am of a view that this is a welcome step by RBI.”
Sathe said that while some banks may see a temporary impact on business in the initial phase, the new rules will ultimately benefit customers, banks and insurance companies over the long term.
Sathe noted that the guidelines are still in draft form and open for public comments until early March. They will be effective from July, giving banks and insurers time to adjust their systems and processes. He highlighted that the rules apply not only to insurance, but also to mutual funds and pension products.
He also flagged areas that may need clarification. For example, if a customer cancels within 30 days, questions may arise on who bears costs like medical fees or stamp duty. In the case of mutual funds, if markets fall after investment, it is unclear who absorbs the loss in case of a refund.
Both experts agreed that while revenues may see some short-term pressure, the move will strengthen customer confidence and improve transparency. India’s insurance penetration remains low, and bancassurance has helped expand reach. The focus now is on ensuring clean practices rather than stopping distribution through banks.
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