Reserve Bank of India has issued draft guidelines that significantly tighten accountability in the sale of financial products by banks, marking a decisive shift in regulatory stance. Under the proposed framework, banks would bear full responsibility for refunding customers the entire amount in cases where a product or service is found to have been mis-sold. This liability applies even if the customer had provided explicit consent. 

 

The regulator’s position is clear: customer agreement does not absolve a bank if the product proves unsuitable for that individual’s financial profile. In addition to refunds, banks would also be required to compensate customers for any losses arising from such mis-selling.

 

Released on 9 February 2025, the draft guidelines aim to strengthen oversight of how banks advertise, market, and distribute financial products. The framework clearly defines mis-selling to include offering products that do not align with a customer’s profile despite obtained consent, providing false or incomplete information, selling products without proper authorization, and bundling unwanted products with services the customer actually sought.

 

To prevent such practices, banks would be required to undertake a structured suitability assessment before selling any product. This assessment must consider factors such as the customer’s age, income level, financial literacy, risk tolerance, investment horizon, product complexity, and fee structure. The guidelines also extend responsibility to third-party products distributed by banks, emphasizing that institutions must ensure these offerings align with customers’ needs and risk appetite.

 

One particularly significant aspect of the draft guidelines targets the incentive structures that often drive problematic sales behavior. The RBI has proposed prohibiting bank employees from receiving incentives—either directly or indirectly—from external parties such as insurance companies or mutual fund houses. This provision recognizes that commission-based arrangements can create conflicts of interest that prioritize sales volume over customer welfare.

 

Banks would also be directed to avoid internal policies that might encourage mis-selling, such as competitions between business units to sell products and services. When a bank's own product is linked to a third-party purchase, customers must have the freedom to acquire that third-party product from any provider, not just the bank's partner.

 

The guidelines establish a 30-day window for customers to report mis-selling after signing an agreement. When mis-selling is proven, banks must compensate customers for resulting losses and return the full amount paid.

 

The RBI has opened these draft guidelines for public comment until 4 March 2026, with implementation expected to begin from 1 July 2026.

 

The proposed measures come amid a sharp rise in mis-selling complaints across India’s financial services sector, including more than 2.5 lakh insurance grievances recorded in FY2024–25. Against this backdrop, the draft framework signals a clear regulatory intent to shift accountability firmly onto banks and strengthen consumer protection standards across the industry.

 

Beyond traditional sales practices, the RBI has also addressed modern concerns about digital interfaces. The proposed rules require banks to ensure their online platforms don't employ so-called "dark patterns"—design elements that manipulate users through tactics like false urgency, items automatically added during checkout, or subscription traps that make cancellation unnecessarily difficult. Banks would need to regularly test and audit their digital interfaces to identify and eliminate such manipulative practices.

 

A recent case involving a 90-year-old bank customer has drawn attention to the persistent issue of financial product mis-selling and the broader concern that corrective action often depends on public scrutiny rather than built-in safeguards.

 

In this instance, a 90-year-old, long-standing customer was sold a life insurance policy carrying an annual premium of 2 lakh, with a maturity year of 2124—nearly a century away. Before his family discovered the transaction, two installments had already been deducted from his account, totaling 4 lakh. The scale, tenure, and premium size relative to the customer’s age immediately raised questions about suitability.

 

Experts note that vulnerability in such cases arises not only from advanced age but also from structural weaknesses in how financial products are distributed. When high-value, long-duration insurance products are sold to individuals beyond 60 years of age—particularly where the proposer and the insured are different persons—the risk of misalignment increases significantly. These scenarios warrant enhanced scrutiny rather than routine processing.

 

Industry practitioners have suggested that proposals involving senior citizens above a defined age threshold should automatically trigger additional safeguards. These may include mandatory recorded suitability conversations (audio or video), where the product’s core features are explained clearly: the annual premium commitment ( 2 lakh in this case), total payment obligations, lock-in periods, surrender penalties, risk-return profile, and whether the product primarily serves as insurance protection or as an investment vehicle. Such recordings should be retained for audit and dispute resolution.

 

Where the proposer and insured are separate individuals, an independent confirmation call with the insured party should be mandatory. Product tenure, beneficiary structure, premium funding source, and consent should be recorded separately to avoid ambiguity or later claims of lack of awareness.

 

The case also highlights another structural issue: maximum entry ages for many life insurance policies typically cap around 80 years. When a 90-year-old becomes financially linked to a long-term policy structure—especially one extending toward 2124—it raises legitimate questions about whether product design, documentation practices, or account structuring mechanisms are being used in ways that may technically comply with rules while undermining the spirit of suitability.

 

More broadly, such incidents point to systemic pressures within distribution channels, including incentive-linked sales targets, reliance on customer trust built over decades, and suitability assessments that risk becoming checkbox formalities. When elderly individuals—particularly those with limited financial literacy—commit to long-term obligations involving 2 lakh annually and 4 lakh already deducted, the consequences can materially affect lifetime savings.

 

The deeper issue is institutional: resolution should not depend on social media amplification or public attention. Preventive safeguards—clear age-based triggers, independent verification in high-risk cases, documented suitability explanations, and enforceable accountability—must operate before a policy is issued, not after a dispute emerges.

 

The matter was brought to public attention by Saketh R, Iyer's grandson-in-law, who posted about it on social media platform X. Canara Bank did resolve the issue, restoring the funds to the account. Saketh later deleted his post and thanked the bank for what he described as a quick resolution.

 

However, the circumstances of this resolution reveal a disturbing pattern. Saketh has approximately 90,500 followers on the platform, giving his post significant reach and visibility. Once the story gained traction online, the bank acted swiftly.

 

The money has been credited to the bank, I have deleted the previous tweet.

Thanks to Manmeet, Prabhu and Sandeep from Canara Bank for quick resolution.

Thank you all for the support. https://t.co/81QH6MduYC

— Saketh R (@saketh1998) February 9, 2026

 

Multiple users who commented on the case explicitly highlighted this disparity. The consensus was clear: this resolution happened because the person raising the complaint had substantial reach and could generate public pressure. For the average customer—someone without followers, without a platform, without the ability to make their grievance go viral—obtaining similar accountability is far more challenging.

 

This raises a fundamental question about justice and accessibility: Should redressal depend on one's ability to generate public outrage? The incident underscores why systematic regulatory intervention is urgently needed.

 

This single incident represents just one visible example of a much larger structural problem affecting India's financial services sector. Mis-selling isn't confined to one institution or branch—it reflects systemic weaknesses in how financial products reach consumers.

 

Data from the Insurance Regulatory and Development Authority of India reveals the scale of the challenge. Through its Bima Bharosa complaint platform, over 2.5 lakh insurance-related grievances were registered in the 2024-25 fiscal year. Approximately 1.2 lakh of these concerned life insurance specifically.

 

Complaints categorized under unfair business practices—which encompass mis-selling and inadequate disclosure—represent more than one-fifth of all life insurance grievances, with numbers increasing annually. This translates to tens of thousands of policyholders formally asserting each year that what they purchased didn't align with what they were promised.

 

This creates a two-tiered system of justice: one for those who can generate public outrage, and another for those who cannot. It means that identical cases of mis-selling may receive vastly different responses depending on the complainant's social media presence rather than the merits of the case itself.

 

The implications are sobering. How many similar cases exist where elderly customers or vulnerable individuals were mis-sold inappropriate products but lack the platform to seek redressal effectively? How many complaints languish in formal channels while banks respond quickly only when reputational damage threatens?

 

This disparity in access to justice is precisely why systematic regulatory intervention, as proposed by the RBI, becomes critically important. Protection cannot continue to depend on one's ability to go viral.

 

The Root Cause: Incentive Architecture

While blaming the bank feels instinctive—after all, the sale occurred at a branch counter—mis-selling often reflects underlying incentive structures rather than isolated misconduct by individual employees.

 

Banks earn commissions from distributing insurance products. Branch personnel operate under cross-selling targets. Insurance companies rely heavily on bancassurance channels for premium growth. Quarterly performance metrics reward volume over suitability.

 

In such an environment, the imperative to assess suitability can quietly lose ground to the pressure to meet sales numbers.

 

If a policy was processed and issued, it also passed through documentation and underwriting checks. This widens the circle of accountability beyond the front-line sales staff.

 

Key questions emerge: Were entry-age norms strictly enforced? Was suitability meaningfully evaluated or merely documented as a formality? Was consent explained in substance or obtained purely as a procedural requirement?

 

These are fundamentally systemic questions that point to problems in organizational culture and regulatory oversight.

 

Will Regulation Be Enough?

The RBI has signaled that it recognizes mis-selling as more than isolated misconduct—it's a systemic issue requiring comprehensive regulatory response. The draft guidelines propose clearer suitability standards, stronger disclosure requirements, and the possibility of penalties and supervisory action against banks found guilty of mis-selling third-party products.

 

This shift in regulatory tone matters. For years, accountability in bancassurance has been diffused between distributors and insurance providers. A framework that explicitly assigns responsibility to banks could alter internal controls and compliance behavior throughout the industry.

 

However, the guidelines remain in draft form. The real test will lie in how firmly they're implemented once finalized and how consistently they're enforced over time.

 

Will penalties be substantial enough to reshape incentive structures at the branch level? Will repeated violations trigger escalating supervisory scrutiny rather than routine warnings? Will enforcement actions be publicized to create deterrence across the sector? And will vulnerable populations such as senior citizens receive specific procedural protections?

 

Regulatory intent matters, but enforcement consistency determines outcomes. Until there's visible follow-through with meaningful consequences, mis-selling risks remaining a recurring headline rather than a solved problem.

 

A policy maturing in 2124 may sound bizarre. But the system that processed, documented, and issued it isn't an aberration—it's structured around distribution incentives and procedural compliance that often prioritizes form over substance. Actually fixing mis-selling requires regulators, insurance companies, and banks to realign incentive structures, embed meaningful safeguards, and ensure that suitability assessments are genuine evaluations rather than paperwork exercises. The RBI's guidelines offer a framework for this transformation. The case serves as a stark reminder of why regulatory reform is essential. Justice shouldn't require going viral. Protection shouldn't depend on follower counts. The question now is whether the regulatory framework being developed will deliver on its promise—creating a system where the next elderly customer gets the same swift resolution without needing 90,000 followers to make it happen.