Finance Minister Nirmala Sitharaman on Monday spoke on the need to curb insurance mis-selling practices pervasive in India's banking system. Speaking at an SBI event, the finance minister emphasised that today's banking system needs to rein in the miss-selling of insurance products and other issues that raise customer costs. She asserted that leaders need to focus more on resolving distressed assets through the bad bank NARCL.
“While the bancassurance model has significantly contributed to improving insurance penetration across the country, it has also raised concerns about instances of mis-selling. It has contributed in indirect ways of increased cost of borrowing for the customers,” she states.
The finance minister further underlined that the bank’s core business is to mobilise deposits and lend money. “I wish that core is looked into again, only to pursue it further,” she said. The remark was targeted towards selling and distributing insurance products via bank representatives.
Sitharaman emphasised on bank’s vision to focus on its core banking activities while not burdening customers with insurance that they don’t need. “Banks must prioritise transparency, ethical practices, and clear communication strategies for us to earn the trust of the people,” she states.
Why Do Banks Mis-sell Insurance Products?
Outlook Money previously covered a survey which found that over 57 per cent of bank relationship managers (RMs) in India admitted to mis-selling financial products under extreme pressure to meet their sales target.
Based on the responses of 1,655 RMs across 20 scheduled commercial banks (SCBs), including public sector, private sector, and small finance banks in India, the survey noted that sales-driven pressure often takes precedence over customer needs.
“Targets are slit down our throats, and we’re told not to pass loans of customers who do not buy an insurance policy alongside the loan application even where they do not need it,” a respondent told 1 Finance, a personal finance advisory firm during the survey.
Here’s How To Identify Mis-selling Of Insurance
Though the finance minister has called out banks to be firm and rein in insurance mis-selling instances, it is customers who need to be vigilant and take the necessary steps that will protect them against such mis-selling practices. Here’s what you should do:
1) It is always a healthy practice to do your own research before you invest in any financial product. An Internet search will give you a basic idea of any product that you are planning to buy including its known features, risks, and benefits. You must not solely rely on information given by your bank relationship managers.
2) The phrase that “there’s no such thing as a stupid question” stands right here as well. Asking the right question will help you understand why a relationship manager is offering you any particular product and if it even fits your financial goals. Consider it a red flag if the RM tries to force the insurance product on you and pushes it forward without asking your needs first.
3) If the bank representative tries to sell you an insurance product in addition to a loan or investment service you should handle such a situation with due consideration before making any purchase.
4) It is most important to review all the documents carefully before signing on/for any document. This is particularly important so that you can understand the charges, terms, and long-term implications of the (insurance) product you are about to purchase.
During her address at the SBI event, the finance minister noted, “Banks should serve as a vital pillar of trust building with the public.” She emphasised that this trust will be built by the way banks offer their portfolios and services.
Sitharaman stated that banks must cater to customer’s requirements without clubbing them into one class, particularly in the context where they are engaged with the distribution of insurance products.
