MUMBAI: Reserve Bank of India (RBI) Governor Sanjay Malhotra has issued a strong warning to banks over the rampant mis-selling of third-party products such as insurance and mutual funds, cautioning that any violations will be dealt with “very seriously.”
Addressing the media after the Monetary Policy Committee (MPC) meeting, Malhotra criticised the aggressive sales tactics employed by banks, particularly in pushing insurance products onto unsuspecting depositors. Many banks have turned to selling insurance as a lucrative revenue stream, as it boosts non-interest income without adding to their loan books or attracting capital charges.
However, the drive to meet sales targets has led to widespread malpractice, with bank staff allegedly pressuring depositors—especially senior citizens and women—into withdrawing their fixed deposits and investing in structured insurance plans under the promise of higher returns. In some cases, insurance company representatives operate directly from bank branches, blurring the lines between genuine financial advisory services and aggressive product pushing.
Banks already penalised
The RBI has already penalised banks, including Federal Bank, for mis-selling insurance products, and Malhotra’s warning signals tighter enforcement ahead. Under RBI regulations, any financial institution found guilty of mis-selling third-party products faces strict penalties and disciplinary action.
Meanwhile, in a separate policy move, the RBI cut the repo rate by 25 basis points to 6.25%, the first reduction since May 2020. If banks pass on the rate cut, borrowers could see lower interest rates on home loans and other borrowings.
The RBI’s latest stance underscores its commitment to balancing economic growth with consumer protection and fair banking practices.
