For years, Indian banks quietly turned into insurance marketplaces, where customers seeking credit were told a simple but coercive line — “No policy, no loan.” What began as a financial inclusion drive gradually evolved into an institutionalized practice of bundling loans with unwanted insurance products.
It took a group of officers from Punjab & Sind Bank to expose the system. Their petition, WP(C) 1639/2013, filed before the Delhi High Court, revealed how corporate agency agreements between banks and insurers blurred the ethical boundaries of lending.
In court, the officers alleged that borrowers were coerced into signing insurance forms without understanding their terms, while employees faced pressure to meet unrealistic sales targets tied to cash rewards, foreign tours, and performance appraisals.
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Their resistance wasn’t about rebellion — it was about responsibility.
“This wasn’t just a petition. It was a mirror held up to the entire banking system,” said a senior member of the All India Punjab & Sind Bank Officers Union.
The Systemic Breach: How Incentives Engineered Mis-Selling
The issue traced back to 2004, when Punjab & Sind Bank signed a corporate agency agreement with Aviva Life Insurance. Similar pacts proliferated across the sector, making banks the distribution arms of insurance companies. Officers were trained and evaluated not on service quality but on policy conversions.
The petition detailed how the so-called “Business Promotion Scheme” rewarded staff with commissions, trips, and bonuses — a violation of the Banking Regulation Act, RBI circulars, and IRDAI norms.
The RBI, in a submission before the court, confirmed that:
“Bank employees were offered commissions and foreign trips in violation of regulatory norms.”
Though the Aviva–Bank partnership was terminated in 2012, ₹25 crore in incentives had already been paid to executives between 2005–2012. A Board Resolution (No. 21294 dated 12.08.2014) initiated recovery — but the court did not record whether the funds were ever reclaimed, leaving a gaping hole in accountability.
This wasn’t an isolated case; it was a systemic breach. Banks across India had normalized the unethical bundling of financial products with credit disbursals.
From Courtroom to Cabinet: The Slow March of Reform
The officers’ writ petition became the first institutional challenge to a culture that prized sales over service. It prompted a judicial acknowledgment of ethical failure, pushing regulators like the RBI, IRDAI, and Ministry of Finance to act.
By 2024, IRDAI Chairman Debasish Panda publicly warned,
“You don’t need to chase customers. No mis-selling, no force-selling.”
Finance Minister Nirmala Sitharaman later echoed similar concerns, saying bundling practices were inflating borrowing costs and eroding public trust in the banking system.
In response, the RBI issued fresh directives separating loan processing from insurance sales and prohibiting performance-linked insurance targets. In May 2025, IRDAI proposed a transaction-fee model to replace commission-based incentives — a structural shift meant to curb coercive sales.
However, reforms on paper mean little without enforcement. As the 2013 case showed, institutions often act only after internal whistleblowers — or ethical resisters — force their hand.
The Human Cost: Pressure, Punishment, and Tragedy
Behind the numbers lies a tragic undercurrent. For many officers, sales pressure turned into psychological torment. Transfers, poor appraisals, and social isolation became tools of punishment for those who resisted unethical targets.
In recent years, suicides of several public-sector bank officers have been linked to sales-related stress — including cases in SBI, Union Bank, and Bank of Baroda. Many left behind notes blaming target pressure and administrative coercion.
“The system didn’t just reward mis-selling — it punished integrity,” one union member observed.
The ethical reckoning triggered by WP(C) 1639/2013 exposed that these were not personal failures but institutional outcomes — the result of systems that incentivized profit over principle.
Reform Blueprint: Making Ethics Operational
Experts argue that real reform must embed ethics within daily operations — not as a compliance checkbox, but as a functional principle. Key proposals include:
- Structural Safeguards: Public dashboards for mis-selling complaints and audit trails for bundled transactions.
- Regulatory Oversight: Clear penalties for violations of IRDAI/RBI norms and third-party compliance reviews.
- HR Protection: Whistleblower safeguards, transparent transfer policies, and delinking sales from promotions.
- Customer Awareness: Mandating visible disclosure of voluntary insurance opt-ins.
These measures could transform ethical resistance into institutional design — a system where trust is not sold but safeguarded.
Trust Must Not Be Bundled
Twelve years after the officers’ petition, India’s financial regulators have begun acknowledging what WP(C) 1639/2013 declared in court: trust is not a product — it’s a promise.
The case remains a landmark in Indian banking ethics — a testament to how conscience-led action can reshape policy. But the work remains unfinished.
When Rajinder Singh and Ram Bharose walked into their banks, they weren’t seeking insurance — they were seeking trust. The officers who stood up for them restored that trust, not through profit, but through principle.
Because in banking, as in democracy, ethics is the only real collateral.
