Policy Watch
RBI Governor Highlights Rampant Unethical Practices Like Fake KYC and Mis-selling in Banking Sector
RBI Governor Shaktikanta Das has raised concerns over the unethical practice of mis-selling financial products by banks, urging for better structuring of staff incentives to deter such behavior.
Speaking at the Conference of Directors of Private Sector Banks in Mumbai on Monday, Das emphasized the need to eliminate practices like mis-selling and opening accounts without proper KYC verification.
“Unethical practices such as mis-selling or bypassing KYC protocols must be curbed. Staff incentive schemes should be carefully designed to discourage such actions,” Das stated.
He further noted that while such practices might offer short-term financial gains, they ultimately pose significant risks, including reputational harm, regulatory scrutiny, and potential financial penalties.
Mis-Selling in Financial Products: A Broader Issue
India has been grappling with the problem of mis-selling across various sectors, particularly in insurance. The 2024 Economic Survey highlighted that this issue is not limited to a few rogue agents but is systemic. The report emphasized the importance of prompt and fair claim settlements and reducing claim rejection rates to enhance insurance penetration.
The survey also underlined the need for financial institutions—including banks, stockbrokers, fund managers, and insurance firms—to acknowledge instances of misrepresentation and compensate customers for any resulting losses. Addressing these issues, it suggested, is crucial for fostering trust and long-term growth in the financial sector.
By addressing these unethical practices head-on, the RBI aims to promote accountability and enhance the integrity of the financial ecosystem.