I say 100% nope on friendly fire (of melee weapons at least). It would be an absolute mess, and before people bring up the idea of making AI compensate by mostly doing overhead, that's not a solution to a long term problem. You are trading one problem, floating banners which some say are immersion breaking, for another problem which is AI that is easily counterable by constant up blocks. This could be exceptionally annoying on servers in which AI help populate the sieges and such to give a larger/grander scale in multiplayer battles. Some AI coming up beside you an purposefully blocking your directions of attack while making a relatively easy target for your enemy to block.
The easiest solution is to simply have a button for on and off banners. People who seriously dislike the immersion breaking banners can turn them off. Yes, it will be harder to distinguish troops, but there are a myriad of ways to alleviate this, we should brainstorm some.
While the rags/cloth pieces being colored and surrounding troops may be nice it could be a pain to set that kind of stuff up, and in the heat of battle may not always be easy to identify. On top of that what about people like myself who are colorblind quite badly?
Heraldry is a good way to do so, but the problem with that is not all troops have shields, armor, or other pieces to signify their allegiance. Not only that but during the era that Bannerlord seems to be taking place the amount of heraldic items on a unit seems to be smaller than usual. Especially to some factions. It reminds me of how Rhodoks often had surcoats with heraldic mail, but the nord and vaegir troops rarely had any heraldic armor. Instead they had shields for the most part.
All of this said, I do believe friendly fire for melee and ranged should be in the game as options both for AI units and your specific character on two different buttons to allow customization and control. This along with the ability to turn floating banners off and on which it most likely seems to already be in the game as we saw no floating banners in the siege videos. The ability to discern different troops without floating banners has a few interesting options available like the mentioned cloth/rags, but for some people they dislike the idea of simple "red on blue" fighting. I guess the rags could at least match the primary color of your heraldry? Then you would have problems with troops having similar banner backgrounds / color combinations.
NOTE: I think SenorZorros has a good point about things to consider. That being said I don't believe hampering the effectiveness of all troops on the battlefield by making friendly fire abled is justified JUST because the player himself has a harder time discerning the troops. It's a bit of an extreme change when some people just wish to have the banners removed for immersion sake, but may also want some form of way to identify their own troops.