TITLE: India's Reserve Bank Issues Second Amendment Directions on Local Area Bank Responsible Business Conduct
BODY:
On June 15, 2026, the Reserve Bank of India (RBI) issued the Reserve Bank of India (Local Area Banks - Responsible Business Conduct) Second Amendment Directions, 2026, introducing comprehensive instructions on advertising, marketing, and sales of financial products and services to all Local Area Banks (LABs). The amendment takes effect on January 1, 2027.
The directions establish detailed requirements governing how LABs market and sell financial products, whether their own or third-party offerings. Key definitions introduced include "compulsory bundling" (conditioning one product's availability on purchase of another), "dark patterns" (deceptive design practices that mislead users), and "mis-selling" (sale of unsuitable products or those lacking proper disclosure and customer consent). The amendment also defines Direct Selling Agents (DSAs) and Direct Marketing Agents (DMAs) as entities engaged by LABs for product promotion, alongside their sub-agents.
LABs must establish comprehensive policies covering suitability assessments, customer feedback mechanisms, and compensation procedures for mis-selling cases. The directions require LABs to maintain updated lists of engaged DSAs and DMAs on their websites, ensure clear identification of non-employee sales representatives, and implement codes of conduct applicable to employees, agents, and third-party representatives. All promotional materials must disclose interest rates, fees, and terms prominently, with explicit customer consent required before marketing communications are sent.
The amendment prohibits compulsory bundling, dark patterns, and misleading practices. It mandates that consent be obtained through signed declarations, OTP-based approval, or digitally recorded confirmation, with default consent settings as "No." LABs must provide customers with 30-day feedback periods post-sale and establish 30-day complaint windows for mis-selling claims, offering full refunds and compensation where mis-selling is established. An illustrative list of eleven dark pattern categories—including false urgency, basket sneaking, and subscription traps—provides guidance on prohibited practices.
LABs must ensure compliance with related regulations from the Department of Telecommunications, Telecom Regulatory Authority of India (TRAI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and Pension Fund Regulatory and Development Authority (PFRDA) regarding their respective product domains.