MUMBAI: The Finance Minister Nirmala Sitharaman highlighted the need for banks to curb the misselling of insurance products, stating that it indirectly adds to the cost of borrowing for businesses and individuals.
Speaking at the SBI’s annual business conclave, Sitaraman said banks often package insurance with loans, sometimes pressuring borrowers into policies that may not align with their needs.
This practice increases financial strain on borrowers, as they’re required to pay additional premiums, thereby inflating their loan obligations and raising the effective cost of borrowing.
Sitharaman urged banks to prioritize their core function of lending over upselling insurance, emphasising that affordable borrowing is crucial for businesses looking to expand.
In response to misselling practices, the Reserve Bank of India (RBI) has intervened, penalising banks that fail to uphold customer interests, reinforcing regulatory scrutiny in this area.
Elevated borrowing rates
The finance minister’s remarks come amid concerns over elevated borrowing rates, which she described as “stressful” for businesses aiming to increase capacity and meet growth demands.
By addressing both interest rate stress and the added burden of unnecessary insurance premiums, Sitharaman highlighted the need for a banking environment focused on transparency, affordability, and sustainable growth.
Misselling insurance products to borrowers has long been an issue and RBI has initiated harsh steps against banks indulging this unethical practice. More than business entities individuals fall prey easily to banks.
It is misleading and not compliant with ethical banking practices for banks to imply that purchasing insurance is mandatory to secure a loan unless it’s a legitimate requirement for certain loan types, like home loans where property insurance may sometimes be stipulated.
Regulatory scrutiny
In many cases, this type of pressure on borrowers not only increases their financial burden unnecessarily but can also lead to regulatory scrutiny. More than borrowers being missold these products, employees are also victimised to missell these products to the unsuspecting customers.
Employee unions of several banks have taken up this issue seriously with their managements. Some union had done campaigns against the management practice of misselling insurance products
In response to misselling practices, the Reserve Bank of India (RBI) has intervened, penalising banks that fail to uphold customer interests, reinforcing regulatory scrutiny in this area.
The finance minister’s remarks come amid concerns over elevated borrowing rates, which she described as “stressful” for businesses aiming to increase capacity and meet growth demands.
By addressing both interest rate stress and the added burden of unnecessary insurance premiums, Sitharaman highlighted the need for a banking environment focused on transparency, affordability, and sustainable growth.
