Banks and NBFCs can no longer engage in “compulsory bundling,” where buying one product means inadvertently buying another. Banks will now be required to get “explicit consent” from users before selling any financial product or service, whether their own or offered through a third party. The changes are part of the Reserve Bank of India’s (RBI) new framework governing the advertising, marketing, and sale of financial products and services by banks.
What is compulsory bundling, and why has the RBI banned it?
The latest directions of the RBI define “compulsory bundling” as the practice by a bank of making the availability of one product or service conditional upon purchase of another product or service.
For instance, when you apply for a home loan, banks and NBFCs often push an insurance policy alongside it. Their reasoning: an extra insurance policy protects the family if the borrower defaults or dies.
However, this practice was recently called out by Finance Minister Nirmala Sitharaman. She argues that if a home loan is already backed by the house itself, why is an unwarranted insurance policy being forced on customers? She is not saying that insurance itself is redundant. However, the problem is when an insurance policy becomes a near-default part of the loan process. When a borrower is unaware of what extra protection the policy actually offers, the practice stops being advice and starts being mis-selling.
Who should be held accountable when the customer does not fully understand what they’ve signed? This is exactly why the RBI has banned compulsory bundling. Even if a product is mandatory and part of a larger service, the person does not need to buy it from the bank or its preferred partner. They must be given an option to buy it elsewhere, the new rules mandate.
Voluntary product packages and complimentary offerings without additional cost will not be labeled as compulsory bundling.
How would consent work under the new RBI framework?
Banks will now be required to get “explicit consent” from users before selling any financial product or service, whether their own or through a third party. Consent may be obtained through:
If an application form includes multiple products or services, the nature and features of each product must be laid out very clearly, and consent must be obtained for each product.
The new rules also mandate that customers must have an option to choose which of these products they want to buy and which they want to ignore.
The default consent option must be “No” or “I do not agree.”
Even if consent has been obtained, a product can still be treated as mis-sold if it is not suitable for the customer. The liability shifts from “Did you sign?” to “Why was this sold at all?”
To determine whether a product is suitable for a customer, banks must assess the following:
And accountability doesn’t stop at the point of sale. Banks will also be required to seek feedback from customers within 30 days of selling them any financial product or service to ensure they fully understand the features of the product and the risks accompanying it.
If a bank is found to be mis-selling a product, it must refund the entire amount paid by the customer and compensate the latter for any losses. Accountability is no longer optional.
What are the dark patterns identified by RBI, and are they prohibited?
India’s central bank has formally called out 11 dark patterns. It defines a dark pattern as follows:
“Any practice or deceptive design pattern using user interface or user experience interactions on any platform that is designed to mislead or trick users to do something they originally did not intend or want to do, by subverting or impairing the consumer autonomy, decision-making, or choice, amounting to misleading advertisement or unfair trade practice or violation of consumer rights.”
Banks and NBFCs are prohibited from deploying the following dark patterns in their digital interfaces, including apps and websites:
What else has changed? Banks can no longer hide behind intermediaries. Whether a product is mis-sold by a relationship manager, a call-centre executive, or a third-party agent, the liability will be borne by the bank.
Lenders will only be allowed to send promotional communications if the customer has explicitly consented to receive them. Banks and their partners will now be required to make sales calls and visits within a specific window, between 9 AM and 5 PM. Sales agents must be clearly identified, properly trained, and visibly separate from core bank staff.
Why this matters: The RBI’s directive is proof that dark patterns have emerged as a new form of mis-selling of financial products. Banks must now comply and stop engaging in deceptive marketing tactics. According to a recent Local Circle survey, 57% of the participants said they encountered basket sneaking on online banking platforms, and 51% were subjected to forced action, while 46% experienced nagging.
For customers, it means fewer surprise add-ons while buying a financial product, as well as fewer complaints about whether they understood what they actually bought. For banks, many of whom act as agents of insurance companies and earn a fee from that, the issue runs deeper. Over the last 10 years, for instance, SBI’s bancassurance revenue has jumped nearly 6x to Rs 2,766 crore. In comparison, its total interest income has only doubled to Rs 4.9 lakh crore over the same period. RBI’s directive may weigh on the sales of banks. But insurance companies will take an even bigger hit, as bancassurance contributes roughly half of the sector’s premiums on average and as much as 80% for some insurers. This could prompt insurtech companies to diversify revenue streams or even change their operating models.
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