Business

RBI draft norms on mis-selling may hit private banks harder

Published

2 months ago

17 February 2026

RBI draft norms on mis-selling may hit private banks harder

ET Intelligence Group: The Reserve Bank of India’s (RBI) draft norms aimed at curbing mis-selling of financial products could weigh more heavily on the private sector banks given their higher reliance on insurance income. According to the data collated by ETIG from annual reports, the share of insurance income in the other income for the top five private sector banks rose to 10% in FY25 from 8.2% in FY19 at the aggregate level. It was at 7.5% in FY24. For the top five public sector (PSU) banks, it remained under 4% during the period under observation. Among the 10 sample banks, ICICI Bank reported the sharpest decline of 13.9 percentage points in the share to 1.6% between FY19 and FY25. It had the lowest share of insurance income in the sample amid its focus on improving efficiency of the core banking operations. For other private banks, the share was between 6% and 16% while PSU banks’ share was 2-4.5% in FY25.

Income from insurance products sold by the 10 sample banks increased two-and-a-half times to ₹16,747 crore in FY25 from ₹6,381 crore in FY19. It increased by 31% year-on-year from ₹12,783 crore in FY24.

“The RBI has proposed that obtaining customer consent is not enough, and that banks must additionally ensure the product is appropriate and suitable for the customer. This will make banks cautious in selling third party products like mutual funds and insurance policies,” a head of retail banking of a private bank told ET.

RBI issued draft norms on February 11 to curb the mis-selling of financial products. The draft rules propose that if mis-selling is established, banks must refund the entire amount paid by the customer and provide additional compensation for any financial loss.
Banks have long linked employee incentives and sales targets to the sale of third-party products such as insurance policies, mutual funds and other financial instruments to increase fee income. Insurance and mutual fund companies also depend on banks for distribution. This may result in sales of unsuitable or unwanted products.

Bancassurance is a well-established model in the financial sector in which banks and insurance companies join hands to sell insurance products to customers.

Business

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