Union Finance Minister Nirmala Sitharaman has taken a tough stance on ‘mis-selling’ of financial products including insurance by banks and asked them to focus on core banking functions like mobilizing deposits and responsible loan disbursement. He welcomed the draft guidelines of the Reserve Bank of India (RBI), which provide for full refund of the amount to customers and compensation for losses. These strict rules will come into effect from July 1.
Speaking to the media after addressing the RBI Central Board of Directors after the Union Budget, the minister said, “Banks should focus on their core business… My biggest complaint has always been this… You are spending more time in selling insurance when it is not needed, and conveniently, it came between the two chairs (RBI and IRDAI).” He indicated that customers had to bear the brunt of regulatory ambiguity between the RBI and insurance regulator IRDAI.
On February 11, the RBI had issued draft guidelines on ‘mis-selling’, saying that if mis-selling of a product or service is found, the bank will have to refund the entire amount paid by the customer and also compensate for the loss as per the accepted policy. Public comments have been invited on this till March 4.
Sitharaman said, “I am glad that RBI is giving guidance on why mis-selling will not be allowed…You cannot afford to miss-selling.” Giving an example, he said that many times while taking a home loan, even when the property is already mortgaged, customers are pressurized to take additional insurance. “…When I am offering my property for a home loan, why am I being asked to take insurance? …So, what is it being asked to de-risk?” He raised the question.
The minister asked banks to strengthen the low-cost deposit base like CASA (Current Account-Savings Account), understand customer needs and emphasize relationship-based banking. According to him, excessive emphasis on selling non-banking products has led to increased customer dissatisfaction and ‘impersonal’ banking.
Meanwhile, RBI Governor Sanjay Malhotra said that deposit growth in the banking system is at about 12.5% and advance (loan) growth is at 14.5%. From February 2025, RBI has reduced the benchmark repo rate by 125 basis points to 5.25%. However, the recent monetary policy stance maintained status quo amid global uncertainties. The next bi-monthly policy will be announced on April 6.
On Central Bank Digital Currency (CBDC), the Governor said that it is not an alternative to cash or other faster payment systems at the moment. The retail CBDC, launched in 2022, is projected as a digital form of currency and not an alternative to UPI.
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