Finance Minister Nirmala Sitharaman on Monday sharply criticised banks for mis-selling financial products, particularly insurance, and urged lenders to refocus on their core role of credit delivery and mobilisation of low-cost current account and savings account (CASA) deposits.
Addressing reporters after her post-Budget interaction with the Central Board of the Reserve Bank of India, Sitharaman said depositors often suffer because mis-selling falls into a regulatory grey area between banking and insurance supervisors.
She said banks should devote greater attention to understanding customers’ financial positions, business cycles and individual requirements rather than aggressively pushing third-party products.
“My pet peeve has always been that (instead of doing core banking business) you’re spending more time on selling insurance when it is not required perhaps, and conveniently, it fell between two stools. The insurance regulator felt it is not their business because it is the banks which are doing it and RBI probably felt it is insurance business they are doing and I will not come into the picture. In between is caught up is the individual deposit holder, the citizen of the country,” Sitharaman told reporters after her post-budget address to the Central Board of the RBI.
“The word mis-sell instead of offending anybody seems to be one more word on the lexicon,” the finance minister said.
On February 11, the RBI issued draft guidelines on mis-selling that propose stronger customer protection measures. Under the proposed framework, banks will be
required to refund the entire amount paid by customers for products or services found to be mis-sold and compensate them for any losses in accordance with an approved policy.
Public comments on the draft norms have been invited until March 4, and the revised rules are scheduled to come into effect from July 1.
Separately, Sitharaman questioned why global investors have not scaled up investments more rapidly despite India’s stable macroeconomic conditions, policy continuity, governance standards and taxation framework, suggesting strategic or geopolitical factors may be influencing capital flows.