Banks need to concentrate on core business, desist mis-selling: FM

Finance Minister Nirmala Sitharaman on Monday came down heavily on banks for mis-selling of financial products, including insurance, to customers and asked them to focus on their core business instead. "Banks should concentrate on their core business...My pet peeve has always been...you are spending more time on selling insurance when it is not required, and conveniently, it fell between two stools (of the RBI and Irdai)," Sitharaman told reporters after her customary post-Budget address to the Central Board of the RBI.
On February 11, the RBI had issued draft guidelines on mis-selling, saying banks will have to refund the entire amount paid by the customer for the purchase of the product or service and also compensate the customer for any loss arising due to mis-selling as per an approved policy. The public has been given time until March 4 to give feedback.The stricter norms on mis-selling will come into effect from July 1, the RBI had said.
Stating that banks were asking customers to buy insurance products even though they already had their required insurance, Sitharaman said the RBI did not monitor such mis-selling, thinking that it fell under the domain of the insurance regulator. Irdai, on the other hand, felt banks are not regulated by the insurance regulator, and customers suffered due to regulatory gaps. “…individual deposit holder, the citizen of this country who kept saying, why am I being asked to take an insurance when I am giving my property, my piece of land (for) taking a home loan? He wants a loan for which the property (collateral) is already there. So, what is he being asked to de-risk? Why should he come up with another insurance there?” the minister said.
Sitharaman said banks should focus on understanding their customers, strengths, weaknesses, and the business cycle, and in the case of personal account holders, their needs and requirements. Banks should focus on improving their low-cost deposit base or CASA (Current Account Savings Account) deposits. The emphasis should be on knowing the customer, mobilising deposits, and lending responsibly, she said, adding that banks have lost sight of this core banking principle, prioritising other activities over building relationships with customers and understanding their credit requirements.