Mis-selling insurance is an Offense; Banks Must Rather Focus on Core Activities: Finance Minister:

Mis-selling insurance is an Offense; Banks Must Rather Focus on Core Activities: Finance Minister The Finance Minister Nirmala Sitharaman has directed the banks to stop mis-selling financial products and rather focus on their key banking activities, such as taking deposits and extending credit. Calling it an offence, Sitharaman said that the banks cannot consider the mis-selling as routine business.

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Her statements come after the Reserve Bank of India (RBI) released its guidance on mis-selling, called the Reserve Bank of India (Commercial Banks - Responsible Business Conduct) Amendment Directions, 2026. These directions are still in a draft stage, and they are expected to take effect from July 1, 2026. These draft rules primarily aim to safeguard the customers against any unwanted financial products. She welcomed the RBI's move, saying that she is glad that the RBI brought such guidance. Over the past few years, complaints have been registered that several customers were forced into buying insurance, mutual funds, or other third-party financial products without having a full understanding of them. The banks receive significant commission income from third-party entities to sell their financial products. Some banks often force customers to buy financial products that are not even suitable for them. At a press conference that was also attended by RBI Governor Sitharaman, she said that "Mis-selling is an offence, if you ask me. The message should go to the banks that you cannot afford to mis-sell." She said that the banks should focus on their role in banking activities like deposit and lending. She said that banks spend the majority of their time selling insurance instead of concentrating on their core role. "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," Sitharaman said.

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She said mis-selling was unclear between the regulators. The insurance regulator thought banks were distributing the products, while the RBI saw it as an insurance business. She highlighted how the customers in the middle were left confused, wondering why they were being asked to buy insurance. With the release of the RBI's draft directions, banks may face higher scrutiny. RBI is proposing stricter guidelines to ensure product suitability and better disclosures.