**Executive Summary**
This document presents the Reserve Bank of India's (RBI) draft amendment directions for Small Finance Banks (SFBs) regarding undertaking of financial services. These amendments, titled the "Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) Amendment Directions, 2026," modify the "Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) Directions, 2025" and will come into effect on April 1, 2026. The document outlines changes to regulations governing agency business and referral services.
**Key Points / Main Content**
* **Effective Date:** The amendment directions come into effect on April 1, 2026.
* **Amendments to Master Direction:**
* **Definitions:** New definitions for "Regulated financial products and services" and "Third-party Product and Service Provider (TPPSP)" are inserted.
* **Deletions:** Sub-paragraphs (1) and (2) under paragraph 7, and paragraph 8 of the Master Direction have been deleted.
* **Revised Paragraphs 37-40:**
* Banks can facilitate the sale of TPPS under the agency business arrangement.
* Banks should only deal with regulated financial products and services within their permitted scope under the Banking Regulation Act, 1949.
* Banks must ensure compliance with the Reserve Bank of India (Small Finance Banks - Responsible Business Conduct) Directions, 2025.
* Agency business must be conducted on a fee basis, disclosed upfront to customers, without bank risk participation.
* TPPSP must have robust customer grievance redressal arrangements; the bank may help in addressing grievances.
* Paragraphs 38, 39 and 40 have been deleted.
* **Revised Paragraph 41:**
* Banks can refer customers to TPPSP for regulated financial products and services (except insurance), subject to certain conditions.
* Banks must comply with the Reserve Bank of India (Small Finance Banks - Responsible Business Conduct) Directions, 2025.
* The bank's role must be purely referral and not involve marketing or grievance redressal.
* Referral arrangements and disclaimers must be explicitly disclosed to the customers.
* The bank's name cannot appear on the product/service documents.
* A list of TPPS under the referral arrangement must be published on the bank's digital channels for transparency.
* Due diligence is required when selecting a TPPSP to take care of reputational risks.
* The bank may collect a one-time referral fee.
**Impact Analysis**
**Small Finance Banks (SFBs)**
* **Impact:** SFBs are affected by the updated regulations governing agency business and referral services. This includes new definitions, restrictions on the products they can offer, and how they interact with TPPS.
* **Action Required:** SFBs must update their policies and procedures to comply with the amended directions by April 1, 2026.
**Customers of SFBs**
* **Impact:** Customers may see changes in the range of third-party products and services offered by the SFBs and will receive more explicit disclosures regarding referral arrangements.
* **Action Required:** Customers should review the updated disclosures and ensure they understand the bank's role in referring TPPS.
**Third-Party Product and Service Providers (TPPSPs)**
* **Impact:** TPPSPs are affected by the new requirements for grievance redressal arrangements and limitations on bank involvement in marketing and distribution.
* **Action Required:** TPPSPs must ensure they have robust customer grievance redressal mechanisms in place and cooperate with the SFBs to adhere to the new regulations.
Key Entities Referenced
Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) Directions, 2025: The original directions being amended by this document. Focuses on financial services undertaken by small finance banks.
Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) Amendment Directions, 2026: The main policy document; an amendment to existing directions concerning financial services by small finance banks.
Banking Regulation Act, 1949: The Act that grants the Reserve Bank of India the power to issue these directions.
Reserve Bank of India: The central bank of India and the regulator issuing these directions.
Reserve Bank of India (Small Finance Banks - Responsible Business Conduct) Directions, 2025: Referenced directions that include regulatory instructions on customer service and conduct.
DOR.RAUG.AUT.REC.No. /24.01.041/2025-26 XX 2026
Draft Reserve Bank of India (Small Finance Banks – Undertaking of Financial
Services) Amendment Directions, 2026
In exercise of the powers conferred by Section 35A of the Banking Regulation Act,
1949, the Reserve Bank being satisfied that it is necessary and expedient in the public
interest to do so, hereby, amends the directions issued vide Reserve Bank of India
(Small Finance Banks – Undertaking of Financial Services) Directions, 2025 (“Master
Direction”).
2. The extant regulations governing agency business and referral services have been
reviewed and, accordingly, the Master Direction has been amended and the revised
regulatory framework is provided below. Further, the regulatory instructions on
customer service and conduct aspects shall be consolidated in the Reserve Bank of
India (Small Finance Banks - Responsible Business Conduct) Directions, 2025.
3. Short Title and Commencement
(1) These Directions shall be called the Reserve Bank of India (Small Finance Banks
- Undertaking of Financial Services) Amendment Directions, 2026.
(2) These Directions shall come into effect on April 1, 2026.
4. These Amendment Directions shall modify the Reserve Bank of India (Small
Finance Banks – Undertaking of Financial Services) Directions, 2025 as under:
(i) In paragraph 4 of the Master Direction, the following shall be inserted after sub-
para (14), namely: -
“(15) Regulated financial products and services means financial products and
services which fall under the regulatory framework of any of the financial sector
regulators viz. Reserve Bank of India, Securities and Exchange Board of India (SEBI),
Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund
Regulatory and Development Authority (PFRDA).
(16) Third-party Product and Service (TPPS) means a product or service as defined
under Reserve Bank of India (Small Finance Banks - Responsible Business Conduct)
Directions, 2025.(17) Third-party Product and Service Provider (TPPSP) means an entity which has
entered into agency business or referral arrangement with a bank to offer its product
or service (Third-party Product or Service (TPPS)) to a customer of the concerned
bank.”
(ii) Sub-paras (1) and (2) under paragraph 7 of the Master Direction stand deleted.
(iii) Paragraph 8 of the Master Direction stands deleted.
(iv) For paragraphs 37 to 40 of the Master Direction, the following shall be
substituted, namely:-
“37. Banks may facilitate the sale of a TPPS under the agency business arrangement
as specified below:
(1) Banks shall only deal with regulated financial products and services in which a
bank is permitted to deal in as per sub-section (a) to (m) and (o) of Section 6(1)
of the Banking Regulation Act, 1949. Only such TPPS which are covered under
the arrangement shall be listed or displayed on websites, mobile applications,
or any other digital banking channels offered by the banks.
(2) Banks shall ensure that it is in full compliance with the instructions on Reserve
Bank of India (Small Finance Banks - Responsible Business Conduct)
Directions, 2025.
(3) Agency business shall be undertaken on fee basis without any risk participation.
This shall be explicitly disclosed upfront to the customers.
(4) It shall be ensured that TPPSP whose products are being sold has robust
customer grievance redressal arrangements in place. The bank may facilitate
the redressal of grievances.
38. Deleted
39. Deleted.
40. Deleted.”
(v) For paragraph 41 of the Master Direction, the following shall be substituted,
namely:-
“41. Banks may refer their customers to a TPPSP only for regulated financial products
and services (except insurance) subject to the conditions listed herein:
2(1) Banks shall comply with the instructions on Reserve Bank of India (Small
Finance Banks - Responsible Business Conduct) Directions, 2025.
(2) It shall be ensured that the role of the bank is purely referral in nature and the
bank is not involved in any of the processes relating to the TPPS such as
marketing, distribution, grievance redressal, etc. The same should be made
explicitly clear upfront through a disclaimer to the customers.
(3) The name or brand of the bank shall not feature in any of the product/ service
documents.
(4) The list of TPPS under the referral arrangement of a bank shall be published
on their websites, mobile application, and any other digital banking channels to
ensure transparency.
(5) The selection of the TPPSP shall be done with proper due diligence so as to
take care of the reputational risks to which the bank may be exposed to while
dealing with the TPPSP. It shall be ensured that TPPSP whose products are
being referred has robust customer grievance redressal arrangements in place.
(6) Banks may collect only a one-time fee from the TPPSP at the point of referring
its customers. No other stream of income/ fee or commission in any form should
be collected by the bank under the referral arrangement.”
(Manoranjan Padhy)
Chief General Manager
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