Introduction

The financial landscape for commercial banks in India is poised for a significant regulatory shift. The Reserve Bank of India (RBI) has released the Draft Reserve Bank of India (Commercial Banks – Undertaking of Financial Services) Amendment Directions, 2026. These draft directions, issued under the authority of Section 35A of the Banking Regulation Act, 1949, propose substantial amendments to the existing Master Direction regarding how banks undertake financial services.

Scheduled to come into effect on April 1, 2026, these amendments specifically target the mechanisms through which banks engage in agency business and referral services for Third-party Products and Services (TPPS). The regulator's intent appears to be a move towards greater transparency, distinct segregation of duties, and enhanced consumer protection by aligning these activities with the Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Directions, 2025.

This article provides a comprehensive analysis of the proposed changes, the introduction of new definitions, the restructuring of agency and referral business models, and the compliance mandate for commercial banks.

Key Definitions and Regulatory Scope

To eliminate ambiguity in the cross-selling of financial products, the RBI has introduced specific definitions within Paragraph 4 of the Master Direction. These definitions set the boundary conditions for what banks can and cannot sell or refer.

1. Regulated Financial Products and Services

The draft inserts a new sub-paragraph (17A), which defines "Regulated financial products and services." This definition is restrictive and protective in nature. It clarifies that banks can only deal with products that fall under the specific regulatory purview of India's primary financial sector regulators:

  • Reserve Bank of India (RBI)
  • Securities and Exchange Board of India (SEBI)
  • Insurance Regulatory and Development Authority of India (IRDAI)
  • Pension Fund Regulatory and Development Authority (PFRDA)

This amendment effectively bars banks from engaging in the distribution or referral of unregulated assets, private schemes, or products that do not fall under the oversight of these four statutory bodies.

2. Third-party Product and Service (TPPS) & Providers (TPPSP)

Two critical definitions have been added after sub-paragraph (18):

  • **TPPS (Third-party Product and Service)😗* This adopts the definition provided under the Responsible Business Conduct Directions, 2025. It refers to financial products created by other entities but sold or referred by the bank.
  • **TPPSP (Third-party Product and Service Provider)😗* This is defined as the entity that enters into an agency or referral arrangement with the bank to offer its products to the bank's customers.

Restructuring Agency Business

The draft directions propose a complete substitution of Paragraphs 58 to 61 of the Master Direction, fundamentally altering how banks conduct agency business.