RBI to Finalize ‘Responsible Business Conduct’ Norms to Curb Mis-selling

Why in News

• RBI plans to announce final guidelines by July 1 to protect citizens from “mis-selling” of third-party products (insurance) by banks.
• IRDAI data shows insurance commissions stood at ₹60,800 crore in FY25, rising 18% while premiums grew only in single digits.
• A main driver is the “front-loaded” commission structure where banks/agents earn most fees upfront, encouraging aggressive pushing of products.
• IRDAI is considering fixing commissions itself to curb malpractices.

Impact

• Economic: Aims to reduce the cost of insurance for customers currently paying higher premiums for acquisition.
• Social: Protects household savings from predatory financial advice.
• Policy: Shift toward “trail-based” commissions rather than upfront incentives to ensure long-term accountability.
• Ecological: [NOT RELEVANT]

GS Paper Focus

GS-3 — Economy: Banking Sector Reforms and Regulatory Oversight POLICIES & SCHEMES: 1. Responsible Business Conduct (RBI Draft Guidelines). 2. Expense of Management (EOM) limits. FURTHER READING: * IRDAI Annual Report FY25. CLUSTER CONNECTION: Formalization Paradox: While banks are formal institutions for saving, the undocumented complexity of third-party commission structures effectively excludes customers from fair wealth creation. SYSTEM-LEVEL INSIGHT: The “Incentive-Integrity Conflict”: The current banking model treats insurance as a volume-driven commodity due to front-loaded commissions. By moving to “staggered payments,” the state aims to align the seller’s long-term profit with the customer’s actual policy value, curbing the “ATM-style” acquisition culture.

Interview Angle

“Should banks be permitted to sell insurance at all, given the inherent conflict between short-term sales targets and fiduciary responsibility to depositors?” ENGLISH VOCABULARY & PHRASES: 1. Mis-selling — deliberate or reckless sale of products unsuitable for a customer — Intermediate 2. Front-loaded — large costs or payments made at the start of a period — Intermediate 3. Purview — the scope of the influence or concerns of something — Intermediate 4. Fiduciary — involving trust, especially with regard to money — Advanced 5. Staggered — arranged in alternating or overlapping time slots — Basic ________________ ==================== ARTICLE 6 ==================== TOPIC: Energy Economics EN_BLOCK