Taking a tough stance on mis-selling of financial products including insurance, Finance Minister Nirmala Sitharaman on Monday asked banks to focus on their core business.
Speaking to reporters after addressing the Central Board of Directors of the Reserve Bank of India (RBI) after the budget, Sitharaman said, banks should focus on their core business. I have always objected to the fact that you are spending more time in selling insurance that is not needed and the matter is stuck between RBI and IREDA.
Insurance sold wrongly will have to be returned.
On February 11, the Reserve Bank of India (RBI) had issued draft guidelines on the sale of products by giving misleading information to the customer. It states that if a product or service is wrongly provided to a customer, the bank will have to refund the entire amount paid by the customer and also compensate for the loss as per the accepted policy. Public comments on this have been sought till March 4. RBI said that strict rules on mis-selling will come into effect from July 1. Sitharaman said, I am happy that RBI is giving clear guidance as to why mis-selling will not be tolerated. The message should go to the banks that you cannot do mis-selling. This word has become just another word in the dictionary, rather than mis-selling or hurting someone.
Take care of customers’ interests
He said that in many cases banks ask customers to buy insurance products even though they already have the necessary insurance. RBI was not monitoring such matters thinking that it came under the purview of insurance regulator. The Insurance Regulatory and Development Authority of India (IREDA) believed that banks did not come under its direct regulation. Customers suffered losses due to this regulatory gap. Giving an example, she said that when a person takes a home loan by mortgaging his property, then why is he asked to take additional insurance when the risk is already covered. Sitharaman reiterated that banks should focus on understanding the needs of their customers, their financial condition and business cycle. He said that the main function of banks is to collect deposits and give loans. Instead of selling non-banking products they should focus on strengthening the low-cost deposits or CASA (current account savings account) base.
Will interest rates be reduced?
Meanwhile, RBI Governor Sanjay Malhotra said that the deposit growth in the banking system is around 12.5 percent while the credit growth rate is around 14.5 percent. Malhotra said that the Monetary Policy Committee (MPC) will decide on further policy rate cuts keeping in view the growth and inflation situation. RBI has reduced the policy repo rate by 1.25 percent to 5.25 percent from February 2025, so that growth can be encouraged amid controlled inflation. However, in the last monetary review meeting this month, the MPC decided to maintain status quo with a neutral stance amid global uncertainties. The first bi-monthly monetary policy for the financial year 2026-27 will be announced on April 6. Assuring the market, Malhotra said that RBI will take necessary steps to provide adequate and sustainable liquidity to all market segments.