The Reserve Bank of India (RBI) has introduced a new framework that permits non-banking financial companies (NBFCs) to undertake insurance distribution business without seeking prior approval from the central bank. According to reports from Business Standard, this move forms part of the RBI's Responsible Business Conduct (Second Amendment) Directions, 2026, which will come into effect from January 1, 2027.
Under the revised framework, NBFCs will be permitted to distribute insurance products subject to compliance with applicable regulations issued by Irdai. As reported by Business Standard, the RBI has reiterated that banks may continue to operate as insurance brokers through departmental arrangements, in accordance with existing regulatory provisions. The framework also clarifies that banks may facilitate the sale of third-party products and services under an agency business arrangement, dealing only with regulated financial products and services.
The RBI has specified that agency business must be conducted purely on a fee basis without any risk participation by the bank. According to the directions reported by Business Standard, the framework draws a distinction between facilitating sales and merely referring customers. Banks may market and refer customers to third-party product and service providers, but cannot directly sell products under referral arrangements.
To prevent customer confusion, banks have been directed to clearly disclose their limited role through prominent disclaimers. As reported by Business Standard, customers must be informed upfront that the bank is only acting as a referral entity and is not responsible for the product or service being offered by the third-party provider. The central bank has also prohibited the use of a bank's brand name or logo in product or service documentation issued by third-party providers.
The revised norms place responsibility on banks to carry out adequate due diligence before partnering with third-party service providers. According to Business Standard, the selection of third-party service providers should be done with proper due diligence to take care of the reputational risks to which the bank may be exposed. Banks have also been asked to ensure that partner entities maintain robust customer grievance redressal mechanisms.
