The Reserve Bank of India (RBI) on Monday allowed non-banking financial companies (NBFCs) to undertake insurance distribution business without seeking prior approval from the central bank, provided they obtain the necessary authorisation from the Insurance Regulatory and Development Authority of India (Irdai).
The 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.
The RBI also reiterated that banks may continue to operate as insurance brokers through departmental arrangements, in accordance with existing regulatory provisions.
The directions further clarify the role of banks in distributing third-party products and services (TPPS).
“Banks may facilitate the sale of a Third Party Product and Service (TPPS) under an agency business arrangement and shall deal only with regulated financial products and services,” the RBI said.
The regulator specified that agency business must be conducted purely on a fee basis without any risk participation by the bank.
“Agency business shall be undertaken on a fee basis without any risk participation,” the directions stated.
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.
The RBI said 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.
Additionally, the central bank has prohibited the use of a bank’s brand name or logo in product or service documentation issued by third-party providers.
“The name or brand of the bank shall not feature in any of the product or service documents,” the RBI said.
The regulator further mandated that sales processes under referral arrangements should be conducted outside the bank’s own platforms, except for the use of redirect links that take customers to the third-party provider’s platform.
The directions also place responsibility on banks to carry out adequate due diligence before partnering with third-party service providers.
“The selection of the third-party service provider should be done with proper due diligence so as to take care of the reputational risks to which the bank may be exposed,” the RBI said.
Banks have also been asked to ensure that partner entities maintain robust customer grievance redressal mechanisms.
The revised norms are part of a broader regulatory effort to strengthen customer protection, improve transparency in financial product distribution and ensure responsible conduct by regulated entities while expanding access to financial services.
The framework complements the RBI’s recently announced measures on responsible business conduct, including restrictions on compulsory bundling of third-party products, explicit customer consent requirements and safeguards against mis-selling and misleading sales practices.