Finance Minister Warns Banks Against Mis-Selling Insurance, Urges Focus on Core Business

New Delhi: Finance Minister Nirmala Sitharaman on Monday issued a stern warning to banks, urging them to stop misleading customers into buying insurance and other financial products. She emphasized that banks should concentrate on their core operations—mobilizing deposits and lending—rather than acting as insurance agents.

Mis-Selling Concerns
Sitharaman highlighted a persistent issue where banks often push insurance products on customers who already have coverage. “Customers ask why they are being sold insurance when they are already pledging their property for a home loan,” she said. She added that regulatory gaps had contributed to the problem, with RBI assuming insurance matters fell under IRDAI, and vice versa.

The finance minister welcomed the RBI’s recent guidelines on mis-selling, stressing that banks must now understand they cannot engage in mis-selling practices. “Mis-selling should no longer remain just a dictionary term—it must be acted upon,” she said.

RBI Draft Rules on Mis-Selling
On 11 February, the RBI released draft rules addressing mis-selling, which require banks to refund customers in full and compensate any losses if products or services are sold incorrectly. These rules are set to take effect from 1 July 2026. Sitharaman criticized banks for spending too much time selling insurance and too little on core banking activities, recommending a renewed focus on savings and current account deposits.

Comments on Gold Prices
Regarding rising gold prices, the minister assured that both the government and RBI are monitoring the situation. She noted that prices are increasing largely due to central banks around the world buying gold, and that demand in India typically rises during festival seasons. “While we are keeping an eye on it, I do not see it as a cause for concern,” she said.

On PSU Bank Mergers
Sitharaman clarified that there is currently no roadmap or plan for merging public sector banks. However, she mentioned that the high-level committee proposed in the 2026-27 budget will examine banking reforms and related issues, including potential mergers.