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In today’s episode on 27th Feb 2026, we explain why the RBI wants banks to stop mis-selling. Book a Free call with Ditto https://ditto.sh/vx51ji
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Hello folks, you're tuned to Different Shots Daily and in today's episode, we explain why the RBI wants banks to stop misselling.
Before we begin, here's a quick word from team Ditto. Life has a way of surprising us and not always in a good way. Sometimes it's a sudden illness or an unexpected hospital visit that can shake up everything. In India, families still pay about 39% of medical expenses directly from their own pockets and just one hospital stay can wipe out years of savings. The easiest way to protect yourself is by getting a good health insurance plan. It's way cheaper than footing one huge bill. And if you're unaware where to start, book a free call with Ditto. No spam, just honest jargon-free guidance. Trusted by over 8 lakh people for their health and term insurance needs. The link is in the description. Now, back to the story. If you want to apply for a home loan today, you walk into a bank
or if you're online savvy, you simply walk through an app. A bank representative calls you, credit scores are checked, income statements are verified, property documents uploaded. Everything seems routine. Then comes the paperwork. Dozens of pages filled with legal and financial jargon that only a lawyer could decode. Somewhere buried in that stack is an insurance policy you didn't see realise you agreed to. But your signature says you did. Now, this is the reality of what's happening in Indian banking right now. And it's not just us saying it. Versions of this play out across bank branches and apps every single day. And it's widespread enough for the government and even regulators to start paying attention now. For context, take the insurance that banks or NBFCs often describe as good to have
when you apply for a home loan. You're told it will protect the loan in case of default, disability or untimely death. But a home loan already comes with a built-in protection for the lender. The property itself is pledged as collateral. In the event of a default or even the borrower's death, the bank has a legal claim on the house. So what exactly is this extra insurance predicting and for whom? Well, here's the logic banks usually give. They'll say this extra insurance policy protects the family. If the borrower passes away and the home loan is still outstanding, the bank can legally claim the house. And that could leave the rest of the household without a roof over their heads. So if the insurance steps in, it pays off the outstanding loan, the bank gets its money and the family gets to continue living in the same house.
On paper, that does sound reasonable, but this explanation only works in one situation. When the borrower doesn't already have life insurance or when the policy they do have isn't large enough to cover the loan amount. Because, think about it folks, if someone already has a life insurance policy that comfortably covers all their liabilities, including the home loan by the way, why should they be even forced to buy another one? In that case, the bank could simply ask for an undertaking. Something that says if the borrower passes away, the bank has the first right over the insurance proceeds to recover the loan. That's clean and logical, but that's rarely what happens. In most cases, whether you already have insurance or not, the bank nudges or sometimes practically compels you to sign up for their insurance policy
if you want the loan approved and it quietly becomes part of the package. This is exactly the kind of thing that the government has started calling out. In fact, recently, the finance minister made a simple point. If a home loan is already backed by the house itself, why is an extra insurance policy being pushed alongside it? Her argument wasn't that insurance is useless, it was that when such products are sold as a near default part of the loan process, without clearly explaining what extra protection they actually offer, it stops being advised and starts looking like, you guessed it, misselling. Now that's the backdrop against which the RVI stepped in, not to ban insurance or cap fee income, but to change how products are sold and who bears responsibility when customers don't fully understand what they signed.
And the changes are quite significant. For starters, banks can no longer engage in compulsory bundling, where taking one product quietly means buying another. If you walk in for a home loan, the conversation has to stay about the loan. Insurance or investment products can still be offered, yes they can, but they can't be positioned as mandatory or necessary for approval. Even when a product is genuinely required as a part of a larger service, customers don't have to buy it from the bank itself. The new rules make it clear that people must have the option. To purchase such products elsewhere, not just from the bank's preferred partner. Then comes the biggest shift of all. It used to be that once you signed a consent form, the bank could simply point out to it and say, hey, you agreed.
Now that difference doesn't carry the same weight anymore. Signing a form or clicking I agree won't automatically protect the bank. Even if consent exists, a product can still be treated as mis-sold if it wasn't suitable for the customer. The question changes from did you sign to why was this sold at all? That's where suitability comes in. Before selling a product, banks are now expected to assess whether it actually fits the customer. Looking at income, age, risk appetite, financial literacy and the product's complexity. Sales are expected to move away from pure targets and closer to relevance. The change doesn't stop at this point of sale. Banks will also be expected to check in with the customers within thirty days of a sale to confirm if they understood what they actually bought. And it's not just what happens in branches.
Now, think about how often you've clicked through a banking app without really reading what's on the screen. The RBI has formally called out dark patterns, hidden checkboxes, pre-selected options, false urgency messages, and wants banks to redesign digital journeys so consent is clear and deliberate. After all, financial products aren't clear in sales. Many of these techniques aren't new. Casinos use them to keep people playing, shopping apps use them to increase card sizes. But banking isn't entertainment or impulse retail. It deals with long-term financial commitments and when design nudges start shaping decisions about debt and savings, regulators begin to worry. There's also a change in pace. Products can't be quietly sold and closed in a single sitting.
Banks are expected to give customers time to understand what they're buying instead of folding add-ons into routine paperwork or rapid digital flows. And if something does go wrong, explanations won't be enough. If mis-selling is established, banks must refund the full amount paid and compensate customers for any losses. Accountability is no longer optional. For anyone tired of endless spam calls, there's relief here too. Thank God. Cold calls and follow-ups can't spill into orders anymore. Banks and their partners are expected to Stick to defined calling windows that is between nine AM and six PM closer to normal working hours. And customers must be clearly told whether they're speaking to a bank employee or an external sales agent.
No more blurred identities where every caller sounds official. Finally, banks can't hide behind intermediaries. Whether a product is sold by a relationship manager, a call center exec or a third party agent, the responsibility stays with the bank. Sales agents must be clearly identified, properly trained and visibly separate from core bank stuff. It was our partner is no longer an escape route. Since these are draft directions, the RBI is still inviting public comments before finalizing the rules. But if the framework broadly goes through in its current form, the immediate change will be felt not just by customers but even by banks. For customers, of course, there will be fewer surprise add-ons, fewer confusing calls and fewer complaints that show up years after a product is sold.
For banks, especially the ones that have been posting record results, the shift may not look huge on the surface, but it does run deeper. To put things in perspective, finally, income from bank assurance doesn't form a large chunk of total income. For SBI, the largest public sector bank, by the way, it contributes less than point five percent of overall income. Now that sounds insignificant until you look at the growth in numbers. Now, over the last decade, for instance, SBI's bank assurance income has grown nearly six times to two thousand seven hundred and sixty-six crore. In comparison, its total interest income has only doubled to four point nine lakh crore over the same period. H D C Bank, the largest private bank, tells a similar story.
Income from third-party business, which includes insurance commissions, mutual fund commissions and marketing fees from promoting third-party products in branches and ATMs, has grown eight times in ten years to six thousand six hundred crore. Its interest income meanwhile has risen nearly five times to three point three lakh crore. And while that gap may not look dramatic at first glance, H D C Bank's annual report notes that this third-party income made up just about fourteen percent of total fee income a decade ago. But today it accounts for twenty-five 5% in FI25. So yes, the RBI's directive may slow sales down and banks will need to find more deliberate ways to grow the stream meaningfully.
But the bigger impact could be on insurance companies as bank assurance contributes roughly half of sectors premiums and as much as 80% for some insurers. That tells you how critical banks are as a distribution channel, which means conversations that once ended in a quick signatures will now need explanations, follow-ups and checks. The numbers may still grow, but sustaining them will take more time, more effort and far more restraint than before. All right, folks. I will see you in the next one. Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected]. Until next time.
Page updated November 10, 2026 · transcript and summary are machine-generated
