Sitharaman Warns Banks Against Mis-Selling, Calls It a Violation Under Bharatiya Nyaya Sanhita

Finance Minister Criticises Sale of Unnecessary Insurance Products by Banks​

New Delhi, February 23: Finance Minister Nirmala Sitharaman on Monday strongly criticised banks for mis-selling financial products, particularly insurance, and said such practices amount to a violation under the Bharatiya Nyaya Sanhita.

Addressing reporters after her customary post-Budget interaction with the Central Board of the Reserve Bank of India, Sitharaman said banks must focus on their core responsibilities instead of aggressively selling non-banking products.

She expressed concern that banks are devoting excessive time to selling insurance products, often when they are not required. According to her, this issue has persisted partly because it falls between the regulatory domains of the RBI and the Insurance Regulatory and Development Authority of India.

RBI Draft Norms on Mis-Selling to Take Effect from July 1​

On February 11, the RBI issued draft guidelines aimed at curbing mis-selling practices. Under the proposed framework, banks will be required to refund the entire amount paid by a customer for a mis-sold product or service. In addition, they must compensate the customer for any financial loss arising from such transactions, as per an approved policy.

The central bank has invited public feedback on the draft guidelines until March 4. The stricter norms are scheduled to come into effect from July 1.

Sitharaman welcomed the RBI’s move, stating that mis-selling will not be tolerated and that banks cannot afford to engage in such practices. She reiterated that mis-selling constitutes a violation under the Bharatiya Nyaya Sanhita.

Regulatory Gap and Customer Concerns Highlighted​

The Finance Minister pointed out that customers are often asked to purchase insurance products even when they already have adequate coverage. She said the RBI had not been actively monitoring such instances, as they were believed to fall under the jurisdiction of the insurance regulator. At the same time, IRDAI viewed banks as entities outside its direct regulatory control, creating a regulatory gap that has adversely impacted customers.

She cited the example of home loan borrowers who are already providing property as security, questioning why they should be compelled to purchase additional insurance policies to de-risk a loan that is already secured.

According to Sitharaman, banks should invest time in understanding their customers’ financial needs, strengths, and vulnerabilities rather than pushing products that may not be necessary.

Focus on Core Banking and CASA Growth​

Reiterating her stance, the Finance Minister said banks must prioritise their core business of mobilising deposits and extending credit. Instead of focusing on selling non-bank products, they should work towards strengthening their low-cost deposit base, particularly Current Account Savings Account deposits.

RBI on Deposit Growth, Advances and Policy Outlook​

Meanwhile, RBI Governor Sanjay Malhotra said deposit growth in the banking system currently stands at around 12.5 per cent, while advances are expanding at 14.5 per cent.

He added that the Monetary Policy Committee will take decisions on further policy rate cuts based on evolving growth and inflation dynamics.

Since February 2025, the RBI has reduced the benchmark policy repo rate by 125 basis points to 5.25 per cent to support economic growth amid benign inflation. However, in its latest policy earlier this month, the MPC maintained status quo with a neutral stance in view of global uncertainty.

The next bi-monthly monetary policy announcement, which will mark the first for the 2026-27 fiscal, is scheduled for April 6.

Assuring markets of sufficient liquidity, Governor Malhotra said the RBI will continue to take necessary measures to provide durable liquidity across all market segments.