Finance Minister Nirmala Sitharaman has cautioned banks that mis-selling financial products will attract penal action under the Bharatiya Nyaya Sanhita, signalling a sharper regulatory stance on customer protection and sales practices in the financial sector.
At a review meeting with heads of public sector and private banks, the minister asked lenders to refocus on their core functions, deposit mobilisation and credit growth, instead of relying heavily on commissions from distributing third-party products such as insurance and mutual funds. She said pushing unsuitable products to customers to meet revenue targets undermines trust in the banking system and exposes institutions to legal and reputational risks.
The directive comes amid an increase in customer complaints about being compelled to buy investment or insurance products while taking loans or opening accounts. Sitharaman stressed that product sales must be aligned with a customer’s financial profile and requirements, and not driven by cross-selling targets.
Banks were also advised to strengthen internal controls, improve staff training and fix accountability at senior management levels to prevent coercive or misleading sales practices. The finance minister called for better grievance-redressal systems and closer monitoring of frontline operations.
From a business perspective, the message signals a shift in the operating environment for lenders that have been using fee-based income to support margins. With regulatory scrutiny set to rise, banks may need to recalibrate their distribution strategies and place greater emphasis on balance-sheet growth, asset quality and credit expansion.
The government also urged banks to step up lending to productive sectors of the economy while maintaining prudent risk management.
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