The RBI issued Responsible Lending and Responsible Business Conduct directions to formally combat bank mis-selling. IRDAI data shows 1,20,726 life insurance complaints in FY24 and 1,20,429 in FY25, with unfair business practice grievances rising 14% year-on-year to over 26,000 in FY25. Banks earned over Rs 1,700 crore in commissions in FY24 from selling financial products. Bancassurance partners accounted for 53% of private life insurers' individual new business premium in FY25, with banks alone contributing 49%.

For over two decades, Indian banks quietly transformed from deposit-and-loan institutions into financial supermarkets. This shift was commercially logical — fee-based income from selling insurance, mutual funds and credit products became a significant revenue stream. Banks earned over Rs 1,700 crore in commissions in FY24 alone, and bancassurance channels now drive nearly half of private life insurers' new business premium. The incentive architecture that emerged, however, created structural pressure to sell regardless of customer suitability. A 2024 survey by 1 Finance found that over 51% of relationship managers feared job loss if they missed sales targets, and 84% reported intense selling pressure. The problem was compounded by digitisation. Where branch mis-selling once affected dozens per agent, a deceptively designed digital journey — pre-ticked boxes, default add-ons, opaque cancellation flows — could affect millions simultaneously. RBI's new framework responds to this evolution by shifting from a documentation-based compliance model to a suitability-based accountability model. Customer signature no longer absolves the institution. Mis-selling is now formally defined to include selling products unsuitable for a customer's age, income, risk profile or financial literacy — even with signed consent. The framework also explicitly targets dark patterns in digital interfaces, mandates explicit consent, bans forced bundling and requires compensation where mis-selling is established. This marks a fundamental regulatory philosophy shift: conduct over paperwork.