FM Sitharaman Cautions Banks on Mis-selling Offences, Urges Lenders to Prioritize Core Business
Finance Minister Nirmala Sitharaman has issued a stern warning to banks regarding the mis-selling of financial products, emphasizing that such practices are now considered an offense under the Bharatiya Nyaya Sanhita (BNS). Speaking to reporters after her post-Budget meeting with the Reserve Bank of India (RBI) Central Board, she urged banks to refocus on their core banking functions rather than aggressively promoting insurance and other non-core products. Sitharaman welcomed the RBI’s recent move to implement stricter regulations on mis-selling, highlighting the importance of protecting consumers in the financial sector.
Regulatory Changes to Combat Mis-Selling
The RBI has taken significant steps to address the issue of mis-selling by issuing draft guidelines that mandate banks to refund customers for products sold through deceptive practices. Under these new regulations, banks will also be required to compensate customers for any losses incurred. The public has been invited to provide feedback on these guidelines until March 4, with the new rules set to take effect on July 1. Sitharaman expressed her approval of the RBI’s initiative, stating that it sends a clear message that mis-selling will not be tolerated in the banking sector.
“I am glad that the RBI is coming up with guidance on why mis-selling is not going to be entertained,” she said. The minister emphasized that banks must understand the seriousness of mis-selling, as it is now classified as an offense under the BNS. This regulatory shift aims to close the gaps that previously allowed such practices to flourish, often leaving customers vulnerable and unprotected.
Focus on Core Banking Functions
Sitharaman urged banks to concentrate on their primary business activities rather than diverting resources to sell insurance products. She pointed out that many customers are pressured into purchasing insurance policies even when they already have sufficient coverage, particularly when applying for loans. This practice not only confuses customers but also undermines their trust in financial institutions.
The minister highlighted the need for banks to prioritize understanding their customers’ financial needs. She stressed the importance of strengthening deposit franchises, particularly low-cost Current Account Savings Account (CASA) deposits, instead of focusing on cross-selling non-bank products. “Banks should concentrate on their core business,” she reiterated, indicating that the emphasis should be on providing essential banking services rather than pushing unnecessary insurance products.
Current Banking Trends and Future Outlook
RBI Governor Sanjay Malhotra provided insights into the current state of the banking system, noting that deposit growth stands at approximately 12.5%, while advances are increasing at about 14.5%. He mentioned that future policy rate decisions would be influenced by ongoing growth and inflation dynamics. Since February 2025, the RBI has reduced the benchmark repo rate by 125 basis points to 5.25% to foster growth amid manageable inflation levels. However, the monetary policy committee maintained a neutral stance earlier this month due to global uncertainties.
Malhotra assured markets that the central bank would continue to implement measures to ensure durable liquidity across all market segments. The next bi-monthly monetary policy announcement is scheduled for April 6, marking the first for the fiscal year 2027. As the banking sector adapts to these regulatory changes, the focus remains on enhancing consumer protection and maintaining stability within the financial system.
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