New Delhi, February 23 Finance Minister Nirmala Sitharaman on Monday strongly criticised banks for mis-selling financial products, including insurance, saying it is a violation of the Bharatiya Nyaya Sanhita (BNS).
"Banks should focus on their core business... My biggest concern has always been... you are spending too much time selling insurance when it is not needed, and conveniently, this falls between the RBI and IRDAI," Sitharaman told reporters after her customary post-Budget address to the Central Board of the RBI.
On February 11, the RBI had issued draft guidelines on mis-selling, stating that banks would have to refund the entire amount paid by the customer for the purchase of the product or service, and also compensate the customer for any loss arising due to mis-selling, as per an approved policy. The public has been given time until March 4 to provide feedback.
The stricter norms on mis-selling will come into effect from July 1, the RBI had said.
"I am glad that the RBI is coming up with guidance on why mis-selling will not be tolerated. And I think the message should go to banks that you cannot afford to mis-sell. Mis-selling is a violation... under the Bharatiya Nyaya Sanhita," Sitharaman said.
Stating that banks were asking customers to buy insurance products even though they already had their required insurance, Sitharaman said that the RBI did not monitor such mis-selling, believing that it fell under the domain of the insurance regulator. IRDAI, on the other hand, felt that banks were not regulated by the insurance regulator, and that customers were suffering due to this regulatory gap.
"...The individual depositor, the citizen of this country who keeps asking, why am I being asked to take insurance when I am already giving my property, my land, and taking a home loan, he wants a loan for which the property is already secured. So what is he being asked to de-risk? Why should he be asked to take another insurance policy," the minister said.
Sitharaman said that banks should focus on understanding their customers, their strengths, weaknesses, and the business cycle, and in the case of individual account holders, their needs and requirements.
She reiterated that banks should focus on their core business, which is mobilizing deposits and providing loans, and instead of selling non-bank products, they should focus on improving their low-cost deposit base or CASA (Current Account Savings Account) deposits.
Meanwhile, RBI Governor Sanjay Malhotra said that deposit growth in the banking system is around 12.5 per cent, while advances are growing at the rate of 14.5 per cent.
Malhotra said that the monetary policy committee will take a decision on further policy rate cuts depending on evolving growth and inflation dynamics.
Since February 2025, the RBI has slashed the benchmark policy repo rate by 125 basis points to 5.25 per cent, in an effort to boost growth amidst benign inflation. However, in the last policy earlier this month, the MPC decided to maintain the status quo with a neutral stance amidst global uncertainty.
The next bi-monthly policy, which will be the first for the 2026-27 fiscal, will be announced on April 6.
Assuring the market about comfortable liquidity, Governor Malhotra said that the RBI will take all measures to provide durable liquidity to all market segments.