The government has taken a strict stance against the mis-selling of financial products. Finance Minister Nirmala Sitharaman has directed banks to focus on their core operations of mobilising deposits and providing loans, stating that unnecessary sales of financial products harm customer interests and will not be tolerated.
The minister made the remarks after a Central Board meeting of the Reserve Bank of India during a media interaction. She said several banks have been encouraging customers to purchase insurance products that they do not actually require. In particular, complaints have surfaced where home loan borrowers were pressured to buy additional property insurance even when they already had sufficient coverage.
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Regulatory Gaps Fueled Bank Mis-Selling Issues
The government has clarified that mis-selling will now be treated not merely as a business dispute but as a criminal offence under the Bharatiya Nyaya Sanhita. The finance minister said banks often assume that selling extra insurance provides better protection to customers, but in reality, many customers are forced to bear unnecessary financial burdens.
Regulatory coordination issues have also been identified as a major reason behind the problem. Earlier, there was uncertainty regarding which authority should monitor mis-selling practices. The Insurance Regulatory and Development Authority of India believed banks did not fall directly under its jurisdiction, while the central bank treated the issue as outside the insurance regulator’s domain. This regulatory ambiguity reportedly led to financial losses for customers.
RBI Draft Guidelines: Refunds and Compensation from July 1
To address the issue, the Reserve Bank of India released draft guidelines on February 11 to curb mis-selling. Under the proposed rules, if mis-selling by a bank employee or institution is established, the bank will be required to refund the entire amount paid by the customer. In addition, compensation will be provided if the customer suffers any financial loss. Public feedback on the draft rules will be accepted until March 4.
The new norms are expected to come into effect from July 1. The government and the central bank believe that these measures will improve transparency in the banking system and strengthen customer confidence.
Banks Urged to Boost CASA Deposits Amid Growth Trends
The finance minister said banks should avoid focusing on selling unnecessary products and instead work on expanding their deposit base, particularly by promoting low-cost Current Account and Savings Account (CASA) deposits.
The central bank governor stated that deposit growth in the banking system is currently around 12.5 per cent, while credit growth stands at approximately 14.5 per cent. He also indicated that future interest rate decisions will depend on inflation and economic growth trends.
Repo Rate Steady at 5.25% with Liquidity Focus
Monetary policy rates have also witnessed adjustments in recent years. Since February 2025, the central bank has reduced the repo rate by a total of 125 basis points, bringing it to 5.25 per cent. However, the latest monetary policy meeting decided to keep rates unchanged.
Assuring adequate liquidity in the banking system, the governor said maintaining financial stability amid global economic uncertainty remains a top priority. Experts believe that stricter action against mis-selling could reshape banking sales strategies and further strengthen the protection of customer rights.
About the author – Ayesha Aayat is a law student and contributor covering cybercrime, online frauds, and digital safety concerns. Her writing aims to raise awareness about evolving cyber threats and legal responses.
