Finance minister Nirmala Sitharaman on Monday issued a warning to banks against mis-selling financial products, stressing that such practices now constitute an offence under the Bharatiya Nyaya Sanhita (BNS) and must stop as regulators tighten oversight.Addressing reporters after her customary post-Budget interaction with the RBI Central Board, Sitharaman said banks should return their focus to traditional banking functions instead of aggressively selling insurance and other non-core products.The minister welcomed the Reserve Bank of India’s move to introduce stricter norms on mis-selling, saying the regulator’s draft guidelines send a clear signal that such conduct will not be tolerated. PTI reported.“I am glad that the RBI is coming up with guidance on why mis-selling is not going to be entertained. And I think the message should go to banks that you cannot afford to mis-sell. Mis-selling is an offence… under … Bharatiya Nyaya Sanhita,” Sitharaman said.The RBI on February 11 issued draft directions mandating banks to refund the entire amount paid by customers for products sold through mis-selling and compensate them for any losses under an approved policy framework. Public feedback has been invited until March 4, with the norms set to take effect from July 1.Highlighting regulatory gaps that previously enabled such practices, Sitharaman said mis-selling often fell between the jurisdiction of the RBI and insurance regulator IRDAI, leaving customers unprotected.“Banks should concentrate on their core business… My pet peeve has always been …. you’re spending more time on selling insurance when it is not required, and conveniently, it fell between two stools (of RBI and IRDAI),” she said.She pointed to instances where customers were pushed to buy insurance products despite already having adequate coverage, particularly while availing loans.“…The individual deposit holder, the citizen of this country who kept saying, why am I being asked to take an insurance when I’m giving my property, my piece of land and taking a home loan, he wants a loan for which the property is already there. So what is he being asked to de-risk? Why should he come up with another insurance there,” the minister said.Sitharaman reiterated that banks should prioritise understanding customers’ financial needs and strengthen their deposit franchises, especially low-cost CASA (Current Account Savings Account) deposits, rather than focusing on cross-selling non-bank products.Meanwhile, RBI governor Sanjay Malhotra said deposit growth in the banking system currently stands at around 12.5 per cent, while advances are expanding at about 14.5 per cent.Malhotra added that future policy rate decisions would depend on evolving growth and inflation dynamics. Since February 2025, the RBI has reduced the benchmark repo rate by 125 basis points to 5.25 per cent to support growth amid benign inflation, though the monetary policy committee maintained status quo with a neutral stance earlier this month due to global uncertainty.The next bi-monthly monetary policy announcement — the first for FY27 — is scheduled for April 6.Assuring markets on liquidity conditions, Malhotra said the central bank would continue taking measures to provide durable liquidity across all market segments.
