Winning Bizness Desk
Mumbai.Finance Minister Nirmala Sitharaman on Monday pulled up banks for aggressively pushing insurance and other financial products, saying they must refocus on their core banking responsibilities. Addressing reporters after speaking to the Central Board of the Reserve Bank of India, she voiced strong displeasure over what she described as persistent mis-selling practices. The Finance Ministry has also advised banks and insurance companies not to sell unsuitable policies to customers.
Focus must remain on core banking
Sitharaman said banks were spending disproportionate time selling insurance policies that many customers did not need. “My constant complaint has been that you are devoting too much time to selling insurance products,” she remarked. She also pointed out that the issue had remained unresolved between the Reserve Bank of India and the Insurance Regulatory and Development Authority of India for some time, leaving regulatory clarity hanging.
RBI issues draft norms on mis-selling
Earlier, on February 11, the Reserve Bank of India released draft guidelines aimed at curbing mis-selling. The proposed norms state that if a bank is found to have wrongly sold any product or service, it must refund the entire amount paid by the customer. In addition, banks may be required to compensate customers for losses as per their internal policies. The central bank has invited public feedback on the draft guidelines until March 4.
What constitutes mis-selling in banks
Mis-selling typically occurs when customers visiting banks for fixed deposits or loans are pressured into purchasing life or health insurance policies. In many cases, customers are told that buying such policies is mandatory, even when no such rule exists. Bank staff, often under pressure to meet sales targets, provide incomplete or misleading information to close these sales.
Key concerns flagged by regulators
- Customers allegedly coerced into buying insurance products
- False claims that policies are compulsory for loans or FDs
- Incomplete disclosure of product terms and risks
- Sales driven by internal targets rather than customer need
IRDAI data shows complaints remain high
Recent data from the Insurance Regulatory and Development Authority of India indicates that complaints against life insurance companies have not significantly declined. In FY25, a total of 1,20,429 complaints were recorded, almost unchanged from 1,20,726 in the previous year.
Further, complaints related to unfair business practices rose from 23,335 to 26,667. The share of grievances specifically linked to mis-selling increased from 19.33 percent to 22.14 percent of total complaints, underlining the scale of the issue.
Regulatory focus going ahead
With the Finance Ministry and the Reserve Bank of India now taking a firmer stance, banks may soon face stricter accountability for mis-selling, signalling a push towards greater customer protection and transparency in the financial system.
