Kamal Ghorui
Banks shouldn’t be growing their bottom line by misguiding customers. New directive will hopefully stop it
Walking into a bank can feel a bit uncomfortable. Long ago, the lines were annoying enough. Today, things feel worse because many bank employees try to sell you financial products — like insurance or investment plans — that you may not need or even understand.
This has caused real problems. A 2023 survey showed that only about one in four Indian adults truly understands basic financial ideas. Because of this, many people end up buying products that don’t suit their age, income or how much risk they can take.
Banks, however, make huge amounts of money from selling these products. In 2023–24, India’s top 15 banks earned almost Rs 22,000 crore just from commissions on insurance and similar schemes.
After years of delay, the government and the RBI have finally accepted a simple fact: what helps banks make more money can sometimes hurt customers. So the RBI has issued new rules to stop banks from “mis‑selling” — that means selling a product that is wrong for the customer.
For example, convincing an 80‑year‑old to buy life insurance. Even if the customer signs a consent form, the bank can still be punished. If mis‑selling is proven, the customer must get a full refund.
These rules are important because financial knowledge in India is low, and the power difference between banks and customers is huge. Banks often force customers to buy life insurance when they take home loans.
In villages, 62% of people say they were pressured into buying extra products when they took small loans.
But the problem is not just pushy bank staff. It is the system itself.
Many employees face very high sales targets. In a 2024 survey, more than half of bank relationship managers said they were pressured to mis‑sell. Even worse, almost all of them could not explain basic financial ideas like the difference between nominal and real returns — yet they still acted like financial advisers.
This issue is not only Indian. In 2016, a major American bank, Wells Fargo, was fined for opening over 1.5 million accounts without customer permission and charging them fees. Staff had been told to open up to 20 accounts a day. More than 5,000 employees were fired.
That case shows a warning: when such scandals break, lower‑level employees often get blamed, even though the real problem is the targets and pressure created by the bank’s leadership. If the RBI truly wants change, it must fix these incentive systems, not just punish individuals.
Banks handle the public’s money and trust. They must remember that their main job is to protect customers — not squeeze profit out of them.
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