The newly appointed Governor of the Reserve Bank of India (RBI), Sanjay Malhotra, has issued a strong warning to banks and financial institutions against mis-selling of products. He stated that any violation in this regard will be taken “very seriously” by the central bank.
Speaking at the post-Monetary Policy Committee (MPC) press conference on Friday, Malhotra expressed concerns over the unethical sales practices adopted by banks and insurance companies to meet their sales targets. He emphasized that mis-selling remains a major issue in the Indian financial sector, and the RBI will not hesitate to take strict action against those found guilty.
What is Mis-Selling?
Mis-selling occurs when a financial product is sold to a customer without providing complete and accurate information. This often leads to customers buying insurance policies, mutual funds, or other investment products without fully understanding their terms and risks. The RBI has strict guidelines against such practices, and regulated entities found guilty of mis-selling can face penalties and disciplinary action.
Despite multiple warnings in the past, mis-selling remains widespread in India’s banking and financial sector. Customers have frequently reported being misled into purchasing unsuitable products, and concerns have been raised with the RBI several times.
Earlier also, in various occasions, the issue of mis-selling has been raised. Even the Finance Minister also raised this issue a few months back.
Ms. Sitharaman urged banks to refocus on their primary functions: mobilizing deposits and lending funds. Highlighting concerns around bancassurance—the practice of banks distributing insurance products—she noted that while it has increased insurance penetration in India, it has also led to instances of mis-selling and indirectly raised borrowing costs for customers.
“Banks need to reassess their focus on core banking activities and avoid burdening customers with unnecessary insurance products,” she said. “Transparency, ethical practices, and clear communication must be the pillars on which trust with customers is built.”
