RBI Draft Directions 2026: New rules for product sales

What the RBI has proposed and when it applies

The Reserve Bank of India (RBI) has issued the Draft Reserve Bank of India (Non-Banking Financial Companies – Undertaking of Financial Services) Amendment Directions, 2026. The draft directions are stated to be effective from April 1, 2026. They amend the 2025 Master Directions and focus on streamlining agency-led businesses such as insurance distribution, mutual fund distribution and pension services for Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs). Separately, the RBI has also proposed a comprehensive overhaul of how banks sell and refer third-party financial products such as insurance, mutual funds and pension products. Across both sets of proposals, the stated objective is to curb mis-selling, improve transparency and keep distribution clearly separate from risk-taking.

A harmonised framework across NBFCs and HFCs

A key highlight in the draft is a harmonised framework that creates a unified set of rules for both NBFCs and HFCs in distributing third-party financial products. The draft emphasises clearer guidelines for NBFCs acting as composite insurance agents or mutual fund distributors. It also places a sharper focus on HFCs, bringing them under a more stringent regulatory umbrella for non-core financial activities. The amendments are intended to apply from the next financial year, with the existing 2025 Master Directions to be superseded by these amendments starting April 1, 2026. The overall direction of the draft is towards enhanced compliance and tighter operational standards.

Insurance distribution for NBFCs and HFCs: approval process simplified

Under the draft, NBFCs and HFCs can undertake insurance agency or broking without prior RBI approval, provided they obtain the required permission from the Insurance Regulatory and Development Authority of India (IRDAI). The activity must remain fee-based only, with no underwriting or risk participation. The draft also requires upfront disclosures about the institution’s role and fees, and it reiterates separation between distribution and risk. It adds specific operational controls, including that premiums must be paid directly to insurers and cannot be routed through the NBFC or HFC. Digital channels are also explicitly addressed, with a requirement that only approved products be listed.

Consumer protection guardrails: disclosures, grievances, and payment flows

The draft directions place customer protection at the centre of distribution rules. It requires clear disclosure upfront, including the fact that the NBFC or HFC is acting in a distribution capacity and earning fees. It also requires a robust grievance redressal mechanism by insurers, while allowing NBFCs and HFCs to facilitate grievance handling. Another requirement is that premiums be paid directly to insurers, which is meant to reduce pressure on customers and avoid routing money through the lender or distributor. The draft also references compliance with RBI’s Responsible Business Conduct Directions and strengthens fair-selling expectations across channels.

Insurance joint ventures: allowed, but only with conditions

The draft also distinguishes between distribution and risk participation. NBFCs and HFCs may enter insurance joint ventures with risk participation only if they meet prescribed size, capital adequacy and asset quality norms, and such cases require prior approval as described in the broader framework. The text also states that a registered NBFC may set up a joint venture company for undertaking insurance business with risk participation subject to conditions, including that the NBFC shall not hold more than 50 percent of the paid-up capital of the JV insurance company. In contrast, the corporate agency model without risk participation is permitted without RBI approval, subject to IRDAI regulations and fair-selling practices.

Entry and operational conditions: process and structural limits

The provided framework includes operational requirements for entering insurance business. It states that an NBFC shall make an application for entry into the insurance business, with necessary particulars duly certified by its statutory auditors, through the PRAVAAH Portal to the Department of Regulation (DoR), Central Office, RBI. It also states that an NBFC shall not be allowed to conduct such business departmentally. The text adds that a subsidiary or group company connected to an NBFC or another NBFC engaged in non-banking financial institution or banking business shall not normally be allowed to join an insurance company on a risk participation basis. These provisions underline that risk-bearing structures are treated differently from distribution-only activities.

Banks: tighter rules for agency and referral models

For banks, the RBI has proposed stricter guardrails around how third-party financial products can be sold or referred. Third-party products will be restricted strictly to regulated financial products overseen by IRDAI, SEBI and PFRDA, and unregulated products will not be permitted. Under the agency model, banks can actively distribute products such as insurance, mutual funds and pension schemes, but only on a fee-based basis without risk participation or underwriting. Banks may offer these products through branches or digital channels, subject to disclosures, board-approved policies and compliance with sectoral regulator norms. For insurance distribution, banks must operate strictly under IRDAI-regulated corporate agency or broking models, with premiums paid directly to insurers.

Referral model for banks: one-time fee, no selling or advice

The draft also draws a clear line between “distribution” and “referral” for banks. Under the referral model, banks are restricted to merely referring customers to third-party product providers and cannot market, sell, service or provide advice on the products. Referral arrangements will allow only a one-time referral fee, while commissions, trail fees or revenue-sharing are explicitly disallowed. Banks will also be barred from using their branding in product documents under referral-only arrangements. Alongside this, the guardrails include mandatory upfront disclosure of the bank’s role and fees, communication that the product is not a bank deposit or liability, and a prohibition on bundling third-party products with core banking services.

Mutual funds and pensions: regulator-led compliance requirements

The material also reiterates that distribution must align with the relevant sector regulator. For mutual fund distribution by NBFCs, the text states that NBFCs are allowed to distribute mutual funds subject to compliance with SEBI guidelines or regulations, including its code of conduct. It also refers to the need to frame a board-approved policy regarding undertaking mutual fund distribution and adhere to Know Your Customer (KYC) guidelines. For pension products, the bank framework specifies that banks acting as Points of Presence must comply with PFRDA norms, operate on a fee-only basis and ensure clear demarcation of responsibilities. Across products, the direction is consistent: regulated products only, clear roles, and controlled fee structures.

Key rules at a glance

Why the changes matter for governance and fee-based income

The RBI’s proposals tighten governance around third-party distribution and aim to reduce mis-selling through clearer disclosures and defined responsibilities. The documents repeatedly stress the “arm’s-length” principle and the need to keep distribution separate from risk-taking, including restrictions on underwriting and risk participation in fee-based models. For distributors, the operational changes are concrete: product listings on digital platforms must be limited to approved offerings, customer payment flows should go directly to insurers, and grievance redressal responsibilities must be clear. For banks, the referral model restrictions are particularly specific, with a ban on trail fees and revenue-sharing and limits on branding in product documents. At the same time, the framework continues to allow fee income, but within narrower, regulator-aligned structures.

What to watch next

The draft directions have been issued for stakeholder comments and are expected to replace the existing framework once finalised. The implementation date mentioned in the material is April 1, 2026, which sets a clear timeline for institutions to align policies, disclosures, digital product listings and customer communication. For NBFCs and HFCs, the practical focus will be on IRDAI permissions, fee-based structures, and compliance with responsible conduct and fair-selling requirements. For banks, the operational split between agency and referral models will likely require updates to board-approved policies and compensation structures. Any final changes will depend on the feedback process and the final directions issued by the RBI.