Will mis-selling in banks stop? 

Instead of concentrating on deposits and loans, banks were asked to become financial supermarkets selling insurance, mutual funds, shares, and other products. It was argued that insurance penetration in the country was low and that banks could help rectify this. Banks started subsidiaries of their own or aligned with other insurance companies to sell their products. Major subsidiaries of SBI include:

1. SBI Life Insurance Co. Ltd.
2. SBI Cards and Payments Services Ltd.
3. SBI Funds Management Ltd.
4. SBI General Insurance Co. Ltd.
5. SBI Capital Markets Ltd.

SBI even aligned with Jio Payments Bank Ltd., which it has since exited.

At the same time, Life Insurance Corporation of India wanted a licence to start a bank, which was refused. The country has scope for many such companies, but why should banks get into this? Because the Government of India and the Reserve Bank of India wanted it. Now the RBI has come up with draft guidelines, which may not see the light of the day because banks have opposed similar efforts earlier and will likely try to do the same again.

The ills of cross-selling are many

1. Depositors are directly or indirectly asked to buy these products when they come to deposit money. Often they lose, as has happened with unit-linked scheme offers.
2. Borrowers are compelled to take policies, paying a huge cost.
3. Staff from top to bottom who were involved in cross-selling were given huge incentives in the form of gifts, foreign trips, parties, and promotions. Insurance company agents even started attending performance review meetings of branch managers, and they often question BMs in those meetings.

After repeated appeals from the All India Bank Officers’ Confederation, mis-selling reduced but did not stop. The Government of India and the Reserve Bank of India kept issuing instructions but rarely followed them up with action. The present draft directions on responsible business conduct propose strict rules for banks and NBFCs from 1 July 2026.

Key aspects of the guidelines include

• Explicit consent of the customer
• No forced bundling of products
• Suitability checks before selling products, and safeguards against ‘Dark patterns‘, that is, deceptive digital UI/UX designs that trick users.
• The guidelines also propose third-party oversight so that such agents are clearly distinguished from regular bank staff.
• Accountability
• Incentive structure that encourages staff to remain cautious and move away from aggressive selling. (For full details, see the RBI’s draft on Responsible Business Conduct.)

This appears good, but will it yield results? Doubtful. For example, explicit consent can easily be obtained from a borrower through a signature. At the loan sanctioning stage, no borrower will object. Insurance agents often sit inside bank branches, how can customers distinguish them from bank staff? What is the mechanism for monitoring cases where the guidelines are not followed? The RBI does not have the manpower to do that.

The only real solution is to separate banking from other financial services. In a vast country like India, multiple specialized organizations can handle them. Till then, we require watchdogs like Moneylife and other customer-support organizations.