UPSC Prelims Practice Questions — RBI set for anti-mis-selling norms, focus on incentives

Q1. Under which one of the following statutory provisions did the Reserve Bank of India issue the Responsible Business Conduct (Second Amendment) Directions, 2026, which for the first time gave India a formal regulatory definition of 'mis-selling'?

  • A. Section 35A of the Banking Regulation Act, 1949
  • B. Section 45 of the Reserve Bank of India Act, 1934
  • C. Section 21 of the Banking Regulation Act, 1949
  • D. Section 18 of the Payment and Settlement Systems Act, 2007

Q2. As per the RBI's Responsible Business Conduct (Second Amendment) Directions, 2026, which one of the following best describes what constitutes 'mis-selling'?

  • A. The sale of a financial product without explicit consent, without correct or complete information, or with misleading information — including the sale of a product unsuitable to the customer's profile even if consent was obtained
  • B. Only the sale of a financial product without obtaining the customer's written signature on the proposal form
  • C. Only the sale of a financial product at a price higher than that charged by competing banks for a comparable product
  • D. The sale of any third-party product on which the bank earns a commission, irrespective of disclosure or suitability

Q3. With reference to the regulation of bank-led sale of insurance products in India, consider the following statements. Which of the above is/are NOT correct?

  1. The RBI regulates the business conduct of banks acting as distributors of third-party insurance products.
  2. IRDAI regulates the commission and the overall expenses of management payable by insurers.
  3. Banks functioning as corporate agents for insurers are governed by IRDAI's Registration of Corporate Agents Regulations, 2015.
  4. The ceilings on commission payable in respect of insurance business are fixed by the RBI under the Banking Regulation Act, 1949.
  • A. 1 and 2
  • B. 2 and 3
  • C. 3 only
  • D. 4 only

Q4. Consider the following statements regarding the twin-regulator architecture governing the sale of insurance by banks in India. Which of the above is/are correctly identified?

  1. IRDAI is the statutory regulator for insurers and for insurance commissions.
  2. The RBI's Responsible Business Conduct Directions apply to commercial banks regulated under the Banking Regulation Act, 1949.
  3. Banks distributing insurance are registered with the RBI, and not IRDAI, as corporate agents.
  4. The overall Expenses of Management cap applicable to insurers is prescribed by IRDAI.
  • A. 1, 2 and 3
  • B. 1, 2 and 4
  • C. 2, 3 and 4
  • D. 1, 3 and 4

Q5. Consider the following statements comparing IRDAI's Expenses of Management (EOM) Regulations, 2023 with the earlier regime they replaced. Which of the statements given above is/are correct?

  1. The 2023 regulations replaced the earlier regime of product-wise (segment-wise) commission and expense limits with a single overall cap on expenses of management per insurer.
  2. Under the 2023 regime, insurers fix commission rates through board-approved policies within the overall cap, instead of following fixed product-wise ceilings.
  3. The EOM Regulations, 2023 came into effect from 1 April 2024.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q6. The following are cited as regulations notified by IRDAI as part of its 2023 reform of insurer expenses and commissions (all effective 1 April 2023), EXCEPT one. Which of the above is/are NOT correct?

  1. IRDAI (Expenses of Management of Insurers transacting Life Insurance business) Regulations, 2023
  2. IRDAI (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations, 2023
  3. IRDAI (Payment of Commission) Regulations, 2023
  4. IRDAI (Bancassurance and Responsible Business Conduct) Regulations, 2023
  • A. 1 only
  • B. 4 only
  • C. 3 and 4
  • D. 2 only

Q7. Consider the following statements about the expenses of management (EOM) caps under IRDAI's 2023 regulations for general and health insurers. Which of the above is/are correctly identified?

  1. Insurers carrying on general insurance business — overall EOM cap of 30% of gross written premium.
  2. Insurers exclusively carrying on health insurance business — overall EOM cap of 35% of gross written premium.
  3. Any excess of expenses over the EOM cap is transferred to the Profit & Loss account and borne by the shareholders.
  4. Insurers carrying on general insurance business — overall EOM cap of 35% of gross written premium.
  • A. 1, 2 and 3
  • B. 2 and 4 only
  • C. 1 and 4 only
  • D. 1, 3 and 4

Q8. Under IRDAI's Expenses of Management (of insurers transacting General or Health insurance business) Regulations, 2023, which category of insurers is permitted the highest overall Expenses of Management cap, expressed as a percentage of gross written premium?

  • A. Insurers exclusively carrying on health insurance business
  • B. Insurers carrying on general insurance business
  • C. Insurers carrying on life insurance business
  • D. Reinsurers

Q9. With reference to the commission trends reported in IRDAI's Annual Report for 2024-25 (FY25), consider the following statements. Which of the above is/are correctly identified?

  1. Life insurers' total commission outgo in FY25 was about ₹60,800 crore, an increase of roughly 18% over the previous year.
  2. The growth in commissions in FY25 outpaced the growth in life insurance premiums, which rose about 6.7%.
  3. First-year commissions accounted for the largest share — over half — of the total FY25 commission payout.
  4. The number of new individual life insurance policies sold rose sharply in FY25.
  • A. 1, 2 and 3
  • B. 1 and 4 only
  • C. 2, 3 and 4
  • D. 1, 2 and 4

Q10. The practice of a bank compelling a customer to purchase an insurance policy — for instance as a condition for sanctioning a loan or allotting a locker — is expressly prohibited for banks acting as corporate agents under regulations framed by which authority?

  • A. IRDAI, under the Registration of Corporate Agents Regulations, 2015
  • B. RBI, under the Payment and Settlement Systems Act, 2007
  • C. SEBI, under the Intermediaries Regulations, 2008
  • D. Ministry of Finance, under the Insurance Act, 1938

Q11. Within the Reserve Bank of India, the Responsible Business Conduct Directions for commercial banks — governing sales practices and mis-selling — are framed and administered by which department?

  • A. Department of Regulation
  • B. Department of Payment and Settlement Systems
  • C. Department of Currency Management
  • D. Financial Markets Regulation Department

Q12. The Insurance Regulatory and Development Authority of India (IRDAI) was constituted as a statutory body under which one of the following?

  • A. The Insurance Regulatory and Development Authority Act, 1999
  • B. The Insurance Act, 1938
  • C. The Life Insurance Corporation Act, 1956
  • D. The General Insurance Business (Nationalisation) Act, 1972