Finance Minister Nirmala Sitharaman has warned banks and financial institutions that mis-selling financial products is now a punishable offence under the Bharatiya Nyaya Sanhita, and asked them to return their focus to core banking activities instead of aggressively cross-selling third-party offerings.
Speaking at a meeting with bank chiefs, Sitharaman said customers must not be forced or misled into buying insurance, mutual funds or other investment products that do not match their needs. She stressed that such practices erode public trust in the banking system and will invite legal consequences under the new criminal law framework.
The minister made it clear that banks exist primarily to mobilise deposits and provide credit, and that these fundamental functions should not take a back seat to fee-based income from distribution of financial products. She urged lenders to strengthen their due diligence and ensure that products are sold only after proper assessment of a customer’s risk profile and financial goals.
The government’s message comes amid rising complaints from customers who say they were pressured into purchasing policies or investment schemes while availing loans or opening accounts. Officials noted that mis-selling not only harms consumers but also exposes banks to reputational and regulatory risks.
Sitharaman also asked bank managements to improve internal training and accountability so that frontline staff do not prioritise sales targets over customer interest. Senior executives were told to closely monitor sales practices and put in place transparent grievance redressal mechanisms.
The finance minister further emphasised the need for responsible growth in the financial sector, calling on banks to support productive sectors of the economy, improve credit flow and maintain strong asset quality.
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