FM Sitharaman to Banks: Focus on Core Banking, Stop Mis-Selling
“Know your customer, reach out to them, lend and make your money from what you lend to them,” she said.
Mumbai:Union Finance Minister Nirmala Sitharaman on Monday raised concerns about banks mis-selling financial products, stating that such practices now constitute an offence under the Bharatiya Nyaya Sanhita (BNS). She urged lenders to focus on their core business of mobilising deposits and lending.
Calling mis-selling her “pet peeve”, Sitharaman remarked that banks are spending “more time selling insurance” rather than concentrating on their primary functions. She asked lenders to return to their traditional business model.
“We have been discussing mis-selling with banks. Banks need to focus on their core business,” Sitharaman said while addressing reporters after the Reserve Bank of India’s Central Board meeting in New Delhi.
The finance minister said that over time, mobilising Current Account Savings Account (CASA) deposits has ceased to be the top priority for banks, and that they appear to have stopped understanding their customers.
“Know your customer, reach out to them, lend and make your money from what you lend to them,” she said.
According to Sitharaman, mis-selling creates a difficult situation for borrowers, who often question why they were required to take insurance while availing a loan. She lauded the central bank for tightening rules around such practices.
“Why should a customer asking for a home loan with collateral take another insurance cover?” Sitharaman said, flagging what she described as instances of mis-selling. “Glad that RBI clarified to banks that they cannot mis-sell,” she added.
Earlier this month, the central bank issued comprehensive draft instructions aimed at curbing the mis-selling of financial products by banks. The proposed norms tighten rules on advertising, marketing and sales practices, while strengthening customer protection.
The draft — titled Reserve Bank of India (Commercial Banks – Responsible Business Conduct) Amendment Directions, 2026 — will come into effect from July 1, 2026. It directs banks to refund the entire amount paid by customers for products sold through mis-selling and compensate them for any losses caused due to such practices, in accordance with approved policies.