A customer walks into a bank to renew a fixed deposit. Months later, they realise
Another customer applies for a home loan and discovers that has quietly become part of the transaction. Others are persuaded to buy investment products they neither understand nor need, often on the assurance that they are “safe”, “guaranteed” or “just like an FD”.
For years, such stories were dismissed as isolated incidents. Consumer complaints kept piling up. Employee unions complained about sales pressure. Financial advisers flagged recurring patterns of unsuitable sales.
Media reports highlighted instances of . Even Finance Minister Nirmala Sitharaman publicly raised concerns about mis-selling in the financial sector.
Now, the Reserve Bank of India yet to curb mis-selling by banks and regulated entities. The regulator has formally defined mis-selling, prohibited deceptive digital practices, banned forced bundling, mandated explicit consent and made institutions accountable for compensating customers when mis-selling is established.
The move raises an important question: What happened in India’s financial sector that made the feel the need to step in so forcefully?
The scale of the problem offers part of the answer.
Insurance Regulatory and Development Authority of India (IRDAI) data shows that more than 1.2 lakh complaints were filed against life insurers annually over the past three years. Life insurers recorded 120,726 complaints in FY24 and 120,429 complaints in FY25. While overall complaint numbers remained broadly stable, grievances linked specifically to unfair business practices and mis-selling continued to rise.
as a significant concern and described it as the sale of insurance products without proper disclosure of terms, conditions or suitability.
Saurabh Vijayvergia, Founder and CEO of CoverSure, said the warning signs have been visible for some time.
“Mis-selling complaints have surged across financial services. In insurance alone, unfair business practice grievances rose 14% year-on-year to over 26,000 in FY25. That tells you the problem is systemic, not isolated,” he says.
The complaints themselves often follow a familiar pattern.
“The most common mis-selling is a product sold as a fixed deposit,” says Shilpa Arora, Co-founder and COO of Insurance Samadhan. “The banker is aware of the money in the account and can push insurance as an FD. Besides this, mandatory insurance is often sold when a customer walks in for any kind of loan.”
According to her, customers typically do not realise they have been mis-sold a product immediately.
“The policyholder places trust in the bank and does not check the document given. They only realise when the renewal premium is demanded after a year,” she says.
The roots of the problem lie in
Over the past two decades, banks have transformed from institutions that primarily accepted deposits and extended loans into financial supermarkets selling everything from insurance and mutual funds to credit cards and investment products.
Dr Arunava Bandyopadhyay, Assistant Professor of Finance at IMI Kolkata, says the shift was driven partly by the growing importance of fee-based income.
“Over the last two decades, banks gradually evolved from relationship banking to product sellers relying increasingly on fee-based revenue,” he says.
The numbers illustrate the scale of this transformation.
Corporate agents, including bancassurance partners, accounted for nearly 53% of private life insurers’ individual new business premium in FY25. Banks alone contributed more than 49% of that premium.
Banks also earned over Rs 1,700 crore in commissions in FY24 from selling financial products, largely insurance and mutual funds.
The incentive to sell became deeply embedded in the system.
A 2024 survey by 1 Finance found that more than half of relationship managers surveyed admitted to mis-selling financial products to meet sales targets. Around 51% feared they would lose their jobs if they missed those targets, while more than 84% reported being under intense pressure to sell.
“The current incentive structure is essentially set up to mis-sell by default,” says Bandyopadhyay. “Cross-selling itself is not problematic. The issue arises when incentives encourage the sale of products regardless of suitability.”
Mis-selling itself is not new. What changed is the scale.
A decade ago, the problem was largely confined to physical branches, where relationship managers promoted unsuitable products through verbal persuasion or incomplete disclosures.
Today, it increasingly occurs through digital interfaces.
Manoranjan Sharma, Chief Economist at Infometric Ratings, said RBI’s intervention reflects the convergence of three developments: rising customer complaints, surging digital distribution and adverse supervisory findings.
“A decade ago, mis-selling was largely branch-driven. Today, it is increasingly embedded in digital design,” Sharma says.
He points to pre-ticked consent boxes, default add-ons, algorithm-driven sales journeys and cumbersome cancellation processes that can steer customers toward products they never intended to buy.
“Mis-selling has evolved from isolated sales misconduct into a systemic issue, where small interface biases can affect millions of customers,” he says.
That shift is significant because a misleading sales pitch by one employee may affect dozens of customers. A poorly designed digital journey can influence millions.
in recent years.
Consumer complaints, social media posts, employee concerns and media reports highlighted recurring instances of customers being sold unsuitable products through banks and financial institutions.
India Today was among the publications that reported extensively on mis-selling concerns, particularly around insurance products distributed through banking channels, documenting cases where customers alleged they were sold products they neither wanted nor fully understood.
The concerns eventually moved beyond consumer grievances and entered policy discussions.
Vijayvergia notes that the issue gathered momentum after public remarks by policymakers and scrutiny from regulators.
“The Finance Ministry spoke about it. The RBI’s annual report also mentioned it. This is no longer viewed as just a training issue or the fault of a few bad agents. It is recognised as an institutional conduct issue,” he says.
Even bank employees began speaking publicly about sales pressure.
In May 2026, the All India State Bank Officers’ Federation raised concerns about aggressive insurance sales targets and pressure on frontline staff, further highlighting the structural nature of the problem.
The RBI’s new Responsible Lending and Responsible Business Conduct directions suggest the regulator believes existing safeguards were no longer sufficient.
Sharma says the central bank’s concern extends beyond individual cases of misconduct.
“RBI’s directions suggest concern not just with individual misconduct but with business models that exploit customer inertia and information asymmetry,” he says.
The new framework defines mis-selling, introduces the concept of dark patterns, requires explicit consent, prohibits forced bundling and mandates accountability across the entire distribution chain, including direct selling agents and third-party providers.
Importantly, the RBI has also made it clear that a customer signature alone is not enough.
According to Shilpa Arora, the new rules represent a fundamental shift in how responsibility is assigned.
“A bank cannot simply say you signed the form,” she says.
She points out that mis-selling now includes selling products that are unsuitable for a customer’s age, income, financial literacy, risk profile or needs, even if the customer signed the documents.
“No insurance policy should be issued without clear and informed consent,” she adds.
Bandyopadhyay sees this as a broader regulatory shift.
“The framework represents a move from a documentation-based approach to a suitability-based approach,” he says.
In other words, the question is no longer whether a customer signed a form. It is whether the product was genuinely appropriate for that customer.
The damage caused by mis-selling often extends far beyond a bad financial decision.
Abhishek Kumar, Sebi-registered investment adviser and founder of SahajMoney, said the biggest loss is often not financial but psychological.
“People lose trust in financial products when they are mis-sold,” he says.
The financial consequences, however, can be severe.
“Apart from loss of capital, it can result in liquidity issues and unexpected premium liabilities that disrupt long-term goals,” Kumar says.
He points to regular-premium products such as Unit Linked Insurance Plans (ULIPs), where customers may face steep costs and surrender penalties if they exit early.
“This misallocation of capital often leaves families underinsured or short on cash during emergencies, affecting retirement planning and education goals,” he says.
He says one of the biggest warning signs is when a product is sold without any meaningful assessment of a customer’s needs.
“When a relationship manager pitches the exact same product without evaluating your age, income requirements or risk tolerance, it indicates a commission-driven sale rather than appropriate advice,” he says.
Experts believe the RBI’s framework has significantly strengthened consumer protections.
Customers now have stronger safeguards against forced bundling, deceptive digital practices and unsuitable product sales. The regulator has also introduced refund and compensation provisions where mis-selling is established.
But experts caution that regulation alone cannot eliminate the problem.
Kumar advises customers to demand a written explanation of why a product is suitable for them, verify all charges and lock-in periods independently, and use the regulatory free-look period to review policy documents carefully.
Arora says many problems arise because customers place blind trust in verbal assurances.
“The policyholder places trust in the bank and often does not check the document given,” she says.
That makes financial awareness as important as regulation.
The RBI may have created stronger guardrails, but consumers still need to ask questions, read the fine print and understand what they are signing.
For years, mis-selling thrived in the gap between trust and information. The RBI has now attempted to narrow that gap. Whether the new framework succeeds will depend not just on how banks change their sales culture, but also on how willing consumers are to become more informed buyers of financial products.