RBI Issues Comprehensive Framework for Responsible Business Conduct by Urban Co-operative Banks: Second Amendment Directions, 2026

The Reserve Bank of India has taken a significant step toward strengthening consumer protection in the co-operative banking sector by issuing the Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Second Amendment Directions, 2026. Issued vide circular RBI/2026-27/120, DOR.MCS.REC.No.99/01-01-037/2026-27 dated June 15, 2026, these directions introduce a detailed and enforceable framework governing how Urban Co-operative Banks (UCBs) advertise, market, and sell financial products and services to their customers. The amended directions will come into force on January 1, 2027.

These directions amend the Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025 and are issued in exercise of powers vested under Sections 35A and 56 of the Banking Regulation Act, 1949.

The Reserve Bank, being satisfied that it is necessary and expedient in public interest so to do, has invoked its powers under Sections 35A and 56 of the Banking Regulation Act, 1949 to introduce these sweeping changes. The primary objective is to curb deceptive practices, prevent mis-selling, and ensure that the sale of financial products — whether the UCB's own or third-party — is conducted ethically, transparently, and with full regard for customer interests.

A parallel directive, the Reserve Bank of India (Urban Co-operative Banks – Undertaking of Financial Services) Second Amendment Directions, 2026, has also been issued in consequence of these amendments.

Key Definitions Introduced

One of the most significant aspects of this amendment is the insertion of several new definitions into paragraph 4 of the principal directions. These definitions form the conceptual backbone of the entire regulatory framework.

Compulsory Bundling

"Compulsory bundling means the practice by a UCB of making availment of one product / service by a customer conditional upon availment of another product / service, whether own or third-party, offered by the UCB."

This definition specifically targets coercive cross-selling, where a UCB forces an assessee to purchase an unwanted product as a precondition for accessing a desired product or service.

Dark Patterns

"Dark pattern means any practices or deceptive design pattern using user interface or user experience interactions on any platform that is designed to mislead or trick users to do something they originally did not intend or want to do, by subverting or impairing the consumer autonomy, decision making or choice, amounting to misleading advertisement or unfair trade practice or violation of consumer rights."

This definition specifically addresses the growing problem of manipulative digital design used to push customers into unintended financial decisions.

Direct Selling Agents (DSA) / Direct Marketing Agents (DMA)

"Direct Selling Agent (DSA) / Direct Marketing Agent (DMA) means an entity or individual (other than a UCB's own employee) engaged by a UCB, irrespective of the contractual designation / nomenclature used for such engagement (such as Business Correspondent (BC), Loan Service Provider (LSP), etc.), to sell or market / promote / influence customers for purchase of its own or third-party product / service."

Additionally, a DSA/DMA sub-agent is defined as an individual engaged by a DSA/DMA who operates at the customer interface level. Where an individual is directly engaged by a UCB under an outsourcing arrangement, both DSA/DMA and DSA/DMA sub-agent instructions apply simultaneously.

"Explicit consent means a specific, informed and unambiguous indication of an individual's choice, given through a duly recorded / documented statement or clear affirmative action, which indicates agreement to a specific action by or arrangement with a UCB."

This high standard of consent is a central pillar of the new framework, ensuring that no financial product or service is foisted upon an assessee without a genuine, documented expression of willingness.

Mis-selling

"Mis-selling means sale of a financial product / service, whether own or third party, in the following cases:
(i) Sale of a product / service, which is neither suitable nor appropriate in view of the customer's profile evaluated at the time of sale, notwithstanding her / his explicit consent; or
(ii) Sale of a product / service without providing correct or complete information or by giving misleading information; or
(iii) Sale of a product / service without customer's explicit consent; or
(iv) Compulsory bundling of another product / service with sale of the requested product / service; or
(v) Sale of a product / service involving any other element defined by the financial sector regulator concerned as mis-selling."

This comprehensive definition covers virtually every form of unethical sales practice and provides clear grounds for customer complaints and compensation claims.

Third-Party Product or Service (TPPS)

"Third-party Product or Service (TPPS) means a product or service offered by a UCB to its customers on behalf of a third-party product / service provider (TPPS Provider) after entering into an agency business or referral services arrangement with the TPPS Provider as permitted under Reserve Bank of India (Urban Co-operative Banks – Undertaking of Financial Services) Directions, 2025."