Crackdown on Bancassurance Mis-Selling
The Finance Ministry and the Reserve Bank of India issued a joint advisory on March 10, 2026, directing banks to immediately implement "explicit written consent" requirements before selling any insurance product to bank customers, and to cease the practice of bundling insurance as a mandatory or implicit condition of loan approvals, account openings, or fixed deposit creation.
The Scale of the Problem
India's banking ombudsman received 87,000 complaints related to mis-sold bank insurance products in FY2025 — a 34% increase from the prior year. Common grievances include: life insurance sold as "fixed deposits" to senior citizens, credit card insurance charged without explicit consent, and single-premium life insurance policies bundled with home loan disbursals without the borrower's knowledge.
New Requirements
Under the advisory:
- Banks must obtain a signed or digitally consented "insurance purchase declaration" separate from any banking product form
- Staff selling insurance products must hold IRDAI-certified Insurance Intermediary licence valid certificates
- Insurance premium amounts must be clearly disclosed in the loan sanction letter as optional, not mandatory
- Banks must maintain a 30-day free-look cancellation facility for all bank-sold insurance policies
- Bancassurance revenue may not be counted in branch manager KPI targets without RBI approval
Industry Impact
Bancassurance is a significant revenue source for banks. For HDFC Bank, SBI, and ICICI Bank, insurance distribution fees contribute approximately 8–12% of fee income. The new consent requirements will likely reduce mis-sold volumes but are expected to improve long-term policy persistency ratios — making the remaining business of higher quality.
