Have you ever been pushed by your bank to buy an insurance policy or investment plan you didn’t even need? If yes, you’re not alone. Mis-selling has become a growing problem in India’s banking system. Banks are under pressure to boost their income by selling insurance and mutual fund products, often without fully explaining the risks or suitability to customers.
Now, the Reserve Bank of India (RBI) is stepping in. It plans to issue new guidelines to stop this rising problem that hurts both customers and the banking system’s reputation.
What Is Mis-selling and Why It’s Dangerous for You
Mis-selling happens when a bank or financial agent sells you a product that is not right for your needs. It could be:
- Selling an expensive Unit Linked Insurance Plan (ULIP) instead of a simple savings plan
- Hiding the real cost or risk of a mutual fund
- Not explaining lock-in periods or return expectations
- Forcing a customer to buy insurance just to get a loan approved
Such tactics can cause big financial losses, especially for people in rural areas or those with less financial knowledge.
Mis-selling on the Rise Despite Regulations
RBI’s Deputy Governor M. Rajeshwar Rao recently said that the number of complaints about mis-selling is increasing. According to data:
- In FY24, complaints related to mis-selling of insurance products increased by 18%, as per IRDAI.
- SEBI also received several complaints about wrongly sold insurance-linked investment products.
- RBI’s data shows a 15% rise in complaints against unfair banking practices.
A 2024 study by the Center for Financial Inclusion revealed that 62% of rural customers felt pressurized by banks to buy extra financial products they didn’t want. In many cases, people lost their savings or ended up stuck in long-term plans with no benefits.
Why Banks Push These Products So Aggressively
Banks make money not just by giving loans but also through “non-interest income” like commissions from selling insurance and investment products.
According to a CRISIL report, in FY24, private banks earned 20% of their income from non-interest sources. This has made branch staff face constant pressure to meet sales targets. In some cases, bank employees push risky financial products even to those who don’t understand them.
For example, in Maharashtra, a farmer was sold a risky ULIP instead of a simple savings plan. After protests, authorities started an investigation into the bank’s selling practices.
RBI May Soon Introduce New Guidelines
To protect customers, RBI plans to tighten rules. In 2024, RBI had already limited how banks tie up with insurance companies. Now, the central bank is working on stronger rules to make sure banks act more responsibly.
RBI has suggested that:
- Banks must give full audio or visual disclosures while selling complex products
- Customers must be informed clearly about the risks, charges, and returns
- Banks must focus on customer interest, not just sales targets
Deputy Governor Rao also highlighted the need to change banks’ internal reward systems. Unless banks stop rewarding staff only for selling, the problem will continue.
Financial Inclusion Goal Gets Affected
Mis-selling is not just about losing money. It also breaks trust between people and banks. The idea behind financial inclusion is to help every Indian join the formal banking system. But when banks push wrong products, people feel cheated and avoid banks altogether.
RBI believes this mindset must change. Banks should educate customers and sell only what suits their needs. Responsible banking is the key to real financial growth for the country.
