Finance Minister Nirmala Sitharaman addressed the issue of mis-selling by banks during a joint presser with the Reserve Bank of India on Monday and urged them to focus on their core businesses.
"I've been speaking consistently on mis-selling. Banks should concentrate on their core business," Sitharaman said.
She went on to call mis-selling her pet peeve and questioned why banks are shifting focus to selling insurance to customers. "Know your customer, reach out to them, lend and make your money from what you lend to them."
Mis-selling by banks refers to an unethical practice of selling additional and often unsuitable financial products such as mutual funds and insurance to their customers.
The FM delved deep into explaining how over time, mobilising Current Account Savings Account or CASA money stopped being the top priority for banks and how they ceased to understand their customers, including things like credit rating.
According to Sitharaman, mis-selling by banks creates a difficult situation for borrowers of the money who often find themselves questioning why they have take insurance for taking a loan. She added that mis-selling is an offence.
"As an individual customer, you had this person worry about taking one more insurance."
Further, the FM praised RBI's tightening of rules around mis-selling, "I am glad that the RBI is coming up with guidance why mis-selling is not going to be entertained," she said.
In order to curb the practice of mis-selling of financial products by banks, the RBI issued draft rules to protect customers from being coerced into purchasing these unwanted products.
The draft, called the Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Amendment Directions, 2026, will come into effect from July 1, 2026.
In a proven case of mis-selling, the proposal directs banks to refund customers. Additionally, they will also have to compensate customers for any losses caused due to such mis-selling, pertaining to their approved policies.
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