Reserve Bank of India tightens rural co-operative banks' agency and referral financial services
Rural co-operative banks must undertake third-party agency and referral sales only under RBI-prescribed Chapter III rules, on a fee-only, no-risk-participation basis with upfront customer disclosure
Change
On 15 June 2026, the Reserve Bank of India issued the Second Amendment Directions, 2026, modifying the Master Direction to constrain how Rural Co-operative Banks undertake agency and referral financial services, effective 01 January 2027.
Why it matters
RCBs are restricted to fee-based agency/referral models that exclude risk participation, creating a compliance boundary around contract structure and revenue treatment. RCBs must also comply with the Reserve Bank of India (Rural Co-operative Banks - Responsible Business Conduct) Directions, 2025, ensure referral arrangements with insurance firms meet IRDAI rules and verify partner insurer grievance-redressal before listing products on RCB digital channels. These obligations tighten permissible product listings, partner selection and customer communications for RCBs.
Implications
- — Rural co-operative banks' boards and compliance/legal teams must convert or terminate any third-party product arrangements that involve risk participation and ensure contracts are fee-only by 01 January 2027 — continuing risk-participation arrangements will be non-compliant with the Directions.
- — Rural co-operative banks' customer-facing and digital channel teams must publish upfront disclosures stating agency/referral arrangements are fee-based and without risk participation on all marketing, customer touchpoints and digital listings from 01 January 2027 — failure to disclose will be non-compliant with the Directions.
- — Rural co-operative banks' product and partner-management teams must list only those insurance products that are covered under the arrangement and must verify partner insurers have operational grievance-redressal mechanisms and that referral arrangements comply with applicable IRDAI regulations from 01 January 2027 — non-covered listings or partnerships lacking grievance arrangements will breach the Directions.
Who is affected
- — Rural co-operative banks' boards and compliance/legal teams
- — Rural co-operative banks' customer-facing and digital channel teams
- — Rural co-operative banks' product and partner-management teams
What to watch
- — Effective: 01 January 2027 — the amended Directions apply and the stated obligations become binding.