Mis-selling has remained a recurring concern in India’s financial sector. Addressing the issue in strong words, Finance Minister Nirmala Sitharaman said banks cannot treat mis-selling as routine business and called it an offence.
“Mis-sell is an offence, if you ask me,” she said at a press conference that was also attended by RBI Governor Sanjay Malhotra. She added, “The message should go to the banks that you cannot afford to mis-sell.”
Her remarks come as the Reserve Bank of India is preparing to issue guidance aimed at curbing mis-selling practices by banks.
A YEAR OF REPORTING ON INSURANCE MIS-SELLING
Over the past year, India Today has reported extensively on insurance mis-selling, examining why it happens and how customers are affected.
Our coverage has highlighted how buying insurance is often made easy, sometimes with minimal explanation, while claims can turn into a long and stressful process. We also reported on how incentive structures within banks and financial institutions can push employees to prioritise sales targets over customer suitability.
For nearly a year, India Today has tracked cases across cities where customers said they were sold insurance products that did not match their needs, income profile or long-term financial goals. In several instances, policy features were not fully explained at the time of purchase.
Some policyholders later said they realised exclusions and conditions only at the time of claim.
Our reports also examined how internal incentive structures may contribute to the problem. Bank employees and relationship managers are often given targets for selling third-party financial products, including insurance. Higher commissions and performance-linked incentives can create pressure to close sales quickly.
Industry experts have pointed out that when compensation is linked heavily to product sales, there is a risk that suitability checks take a back seat. This gap between sales and service has been a recurring theme in customer complaints.
The Finance Minister’s comments now bring policy-level attention to concerns that have been repeatedly flagged in our coverage.
FOCUS ON CORE BANKING
The Minister said banks should concentrate on their core role of deposit mobilisation and lending instead of spending excessive time on selling third-party products.
“I have been speaking consistently. Banks should concentrate on their core business,” she said.
“My pet peeve has always been that you do your core banking business. You’re spending more time on selling insurance, where it is not required, perhaps.”
She clarified that she is not against banks diversifying into other areas. However, she indicated that the balance may have shifted too far.
REGULATORY OVERLAP
She also acknowledged that mis-selling fell into a grey area between regulators.
According to her, the insurance regulator may have felt that since banks were distributing the product, it was not entirely within its direct control. At the same time, RBI may have viewed it primarily as insurance business.
“In between was the customer the individual deposit holder who kept saying, why am I being asked to take an insurance?” she said, underlining how the end customer was left confused.
RBI MOVE WELCOMED
Welcoming the central bank’s move, she said she was “glad that the RBI is coming up with guidance on why mis-selling is not going to be entertained.”
By calling mis-selling an offence, the Finance Minister has raised the seriousness of the issue. With RBI expected to formalise guidance, banks may face closer scrutiny over how insurance products are marketed and whether customers are being properly informed before purchase.
For policyholders who have struggled with complicated claim processes or discovered product limitations later, the coming regulatory steps could prove significant.
