“Mis-selling Is an Offence”: FM Nirmala Sitharaman Warns Banks, Welcomes RBI Guidance

Moneylife Digital Team 24 February 2026

Economy & Nation

Union finance minister (FM) Nirmala Sitharaman has delivered a clear warning to banks against the mis-selling of financial products, stating that such practices amount to an 'offence' and will not be tolerated.

Speaking at the post-Budget press conference after her meeting with the central board of the Reserve Bank of India (RBI), the finance minister said she was “glad that the RBI is coming up with guidance” to address mis-selling. She added, “The message should go to the banks that you cannot afford to mis-sell. Mis-selling is an offence…under Bharatiya Nyay Sanhita.”

Her remarks came in response to questions about complaints from customers who are often required or pressured to purchase insurance and other financial products while availing loans or banking services.

The finance minister stressed that banks must concentrate on their core functions that of mobilising deposits and lending, rather than aggressively cross-selling third-party products.

Referring to common customer grievances, she observed that borrowers are frequently asked to purchase insurance even when adequate collateral has already been provided. Questioning the practice, she remarked in the press interaction: why should a borrower, who is already offering property or land as security for a home loan, be compelled to buy additional insurance?

Her comments suggested that such practices go beyond routine cross-selling and raise concerns about fairness and necessity.

During the interaction, FM Sitharaman also referred to the regulatory framework governing such sales. She indicated that part of the problem has arisen from jurisdictional gaps, where banking regulators treat insurance as outside their core domain, while insurance regulators do not directly supervise banks’ overall conduct.

The insurance regulatory and development authority of India (IRDAI) regulates insurance products, while RBI regulates banks. The minister’s remarks highlighted the need for clearer accountability in situations where banks distribute insurance and other third-party financial products.

The finance minister explicitly welcomed RBI’s move to issue guidance addressing mis-selling and inappropriate sales practices. While she did not elaborate on specific provisions, her endorsement signals support at the highest level for strengthening safeguards around product marketing and customer consent.

Her statement that mis-selling 'is an offence', including reference to the legal framework under the new criminal code, marks one of the strongest public positions taken by the government on the issue in recent years.

For the past 16 years, Moneylife Foundation has consistently warned the public about mis-selling by banks through employees, relationship managers (RMs) and direct selling agents (DSAs) whose jobs and incentives depend on bringing in high-commission business. In numerous cases handled by the Foundation, customers, including elderly and financially unsophisticated individuals, have been sold unsuitable insurance and investment products. Many approach Moneylife only after suffering significant financial losses, often due to a lack of awareness about product features, lock-ins and risks.

Moneylife Foundation has previously submitted a detailed memorandum to the RBI highlighting systemic mis-selling practices and calling for stronger safeguards. (Read: Moneylife Foundation memorandum to RBI on mis-selling by banks).

You may also want to read…

RBI To Curb Mis-selling, Cap Customer Liability in Online Frauds, Tighten Recovery Agent Norms

Comments