RBI Update - Reserve Bank of India (Local Area Banks - Responsible Business Conduct) Second Amendment Directions, 2026

The Reserve Bank of India (RBI) has issued the Reserve Bank of India (Local Area Banks – Responsible Business Conduct) Second Amendment Directions, 2026, effective from 1 January 2027, introducing a comprehensive regulatory framework governing the advertising, marketing and sale of financial products and services by Local Area Banks (LABs). The Directions prescribe enhanced customer protection measures, including mandatory explicit customer consent, suitability and appropriateness assessments, transparent disclosures, customer feedback mechanisms, and compensation in cases of mis-selling. The framework also defines and prohibits practices such as mis-selling, compulsory bundling, and the use of dark patterns in digital interfaces, while establishing governance requirements for the engagement and oversight of Direct Selling Agents (DSAs) and Direct Marketing Agents (DMAs). Further, LABs are required to adopt detailed policies, codes of conduct, grievance redressal mechanisms, and controls over the distribution of both own and third-party financial products, with the objective of promoting fair business conduct, transparency, and accountability in customer interactions.