Last Updated on April 19, 2026 by teamtfl
“Every institution will do what is in its interest to do. The only question is whether that interest aligns with yours.”
A Kotak Mahindra Bank employee in Jaipur once wrote a fake bomb threat letter to his own branch. His motive was not terrorism. He was simply desperate for time. His insurance sales target was due and he had not met it. He calculated that if the bank stayed shut for a week due to a security alert, the deadline would pass.
That story is from 2008. But the underlying pressure that produced it has not gone away. It has grown.
In FY 2024-25, the RBI’s Ombudsman offices received 2.96 lakh complaints against banks and financial institutions. Mis-selling of insurance products through bank branches (bancassurance) was among the leading categories. The Finance Minister publicly called mis-selling an offence. The RBI Governor acknowledged it at public forums. And yet, as Mint reported in August 2025, customers who were mis-sold policies continue to bear the brunt – because little has structurally changed.
⚡ Quick Answer
Banks are structurally incentivised to sell you the product that earns them the highest commission – not the product that serves your financial goals. Insurance mis-selling, ULIP pushing, portfolio churning, and misleading loan terms are not rogue behaviours. They are the predictable outcome of a sales-target culture. Understanding why this happens is the first step to protecting yourself.
Why Bankers Mis-Sell: It Is Not About Bad People
Most bank employees are not dishonest by nature. They are under extraordinary pressure from the day they join. The top management of large banks takes revenue targets from insurance companies and mutual funds. These targets cascade down to branch managers, then to relationship managers, then to tellers at the counter. Every employee’s increment, bonus, and promotion is tied to how much third-party product they sell.
When your quarterly appraisal depends on selling ₹50 lakh worth of insurance policies, you stop asking whether the customer needs insurance. You start asking how to make them say yes.
Four structural reasons explain why the problem persists:
High-commission products are pushed, not suitable ones. A regular premium ULIP earns the banker a commission of 25-35% in year one. A term insurance plan earns far less. Guess which one gets recommended to every senior citizen who walks in to renew their fixed deposit?
The brand creates false trust. When an SBI or HDFC Bank employee recommends a product, most customers assume the institution has vetted it. They do not realise the employee is operating as a commission agent – with all the conflicts of interest that implies.
The turnover is designed to prevent accountability. In 25 years of practice, I have rarely seen a banker carry the same phone number for more than 18 months. By the time you discover you were mis-sold a policy with a 10-year lock-in, the person who sold it to you is in a different city.
The regulatory gap made it easy. Banks are supervised by the RBI. Insurance is supervised by IRDAI. This created a grey area where bancassurance mis-selling fell between two regulators. The Finance Ministry acknowledged this publicly in 2025 and RBI is now drafting comprehensive conduct and sales-practice rules covering third-party products sold through bank branches – but these are still being finalised.
“Over 26,000 complaints of unfair insurance practices were recorded in FY25. Mis-selling accounts for about one-fifth of all life insurance grievances. And yet nothing structurally has changed because the incentives haven’t changed.”
– Hemant Beniwal, CFP, CTEP | Founder, RetireWise
The Mis-Selling Playbook: Know It Before They Use It On You
These are not rare exceptions. In my practice, I encounter clients who have been sold one or more of these products – often by the same bank branch – every single month.
Insurance mis-selling. The most common tactic: presenting a regular premium ULIP as a one-time investment that gives guaranteed returns “better than an FD.” The words “guaranteed” and “insurance” in the same sentence should make you very suspicious. A 74-year-old retired businessman in Delhi was recently persuaded to buy two investment-cum-insurance policies with a single premium promise of a lump sum after 10 years. By the time he realised what he had bought, the free-look period had passed.
Mutual fund mis-selling. Portfolio churning – constantly moving your money from one fund to another – generates trail commission for the distributor on every switch. Each switch also resets your tax holding period. After three years of churning, your portfolio has paid substantial distribution fees and you have lost long-term capital gains treatment on multiple investments. The standard pitch is “the market has changed, we recommend rebalancing.” What they mean is “our commission cycle needs renewing.”
Banking product mis-selling. Zero-balance accounts that turn fee-heavy after six months. Gold coins sold at 10-15% above market price (check jewellers before buying from a bank). Personal loans presented at “9-10%” that turn out to be 18-20% when you read the effective interest rate. Credit cards offered to people who did not ask for them, as a “preferred customer benefit.”
🚫 The Biggest Red Flag
If your bank’s relationship manager is calling you with an “urgent investment opportunity” or offering a product linked to another service (loan, account upgrade, locker allocation), stop. This is almost always cross-selling under pressure, not genuine financial advice. A bank employee is not your financial advisor. They are a salesperson with your account details.
What Is Actually Changing – And What Is Not
In December 2025, the RBI published its Report on Trend and Progress of Banking in India 2024-25, announcing plans to issue comprehensive norms covering advertising, marketing, and sales practices for all regulated entities to prevent mis-selling. This is a significant step. For the first time, both the Finance Ministry and the central bank are treating mis-selling as a systemic problem – not just isolated misconduct.
But these norms were still being drafted as of April 2026. And as anyone who has tracked Indian financial regulation knows, the gap between intent and enforcement can span years. The 2014 RBI circular on insurance mis-selling did not stop it. The 2016 guidelines did not stop it. What will actually change behaviour is strict individual accountability – fines on branch managers, not just corporate-level warnings – and that is yet to arrive.
Read – Bank Locker: The Games Bankers Play
Have a bank-recommended product you’re unsure about?
A second opinion from a SEBI-registered advisor can help you understand what you actually own – and whether it fits your goals.
How to Protect Yourself: Practical Steps
Separate your banking from your investing. Use your bank for what it is good at: savings accounts, FDs, locker, payments. Work with a SEBI-registered investment advisor for investment decisions. The regulatory obligations are completely different.
Never buy an insurance policy at a bank counter. Insurance sold through a bank branch is almost always high-commission, high-premium, and poorly suited to your actual needs. Buy term insurance and health insurance directly from the insurer or through an advisor you trust. Read every document before signing – especially the free-look period clause (15-30 days during which you can return most policies for a full refund).
Ask one question before any product. “What is the commission structure on this, and how does it affect the recommendation?” A transparent advisor will explain clearly. Someone with something to hide will deflect or say there is no cost to you – which is never fully true.
Check effective interest rates, not headline rates. A personal loan “at 10%” that charges processing fees, insurance premiums, and compound interest can have an effective cost of 20%+. Ask for the Annual Percentage Rate (APR), not the flat rate.
Use the RBI Ombudsman. If you have been mis-sold a product, file a complaint with the Banking Ombudsman through RBI’s website (rbi.org.in). The process is free and the resolutions are binding. Most customers do not know this option exists.
What Makes an Advisor Different From a Bank Salesperson
The distinction is not about fees vs. commissions – it is about whether the advisor has a fiduciary obligation to act in your interest, and whether they have the depth of knowledge to give you genuinely useful advice. A SEBI-registered investment adviser (RIA) has a legal obligation to act in the client’s best interest and must disclose all conflicts. A bank employee selling third-party products has no such obligation – their primary obligation is to the bank’s revenue targets. India has fewer than 1,500 active SEBI-RIAs for a population of 1.4 billion people. The shortage itself tells you how underserved genuine independent advice is in this country.
When taking any product recommendation from a bank, ask whether the person is acting as your advisor or as a distributor. The answer changes everything about how you should evaluate the recommendation.
Frequently Asked Questions
Is it illegal for banks to mis-sell financial products in India?
Yes. The Finance Minister has stated clearly that mis-selling is an offence. RBI and IRDAI have both issued guidelines against it. However, enforcement at the individual level has been weak. The RBI is currently drafting comprehensive conduct norms (as of 2025-26) that would create stricter accountability for banks and NBFCs that mis-sell products.
What should I do if I was mis-sold a product by a bank?
First, check the free-look period – most insurance policies allow cancellation within 15-30 days with a full refund. If that window has passed, file a complaint with the bank’s internal ombudsman. If unresolved within 30 days, escalate to the RBI Ombudsman (rbi.org.in) – free to use, with binding resolution authority. For investment products, SEBI’s SCORES portal handles complaints against mutual fund distributors.
How can I tell if a bank recommendation is genuine advice or a sales pitch?
Ask whether the person is SEBI-registered and whether they have a fiduciary obligation to you. Ask specifically what commission or incentive the bank earns on the product being recommended. A genuine advisor will answer these questions clearly. Someone primarily motivated by sales targets will either deflect or give vague answers about there being “no cost to you.”
The system is not designed to serve you. It is designed to extract from you. The only protection is asking the right questions – before you sign anything.
DIY = Destroy It Yourself. But bank-managed = Destroy It For You.
Want a financial plan built around your goals – not a product target?
RetireWise is a SEBI-registered advisor. Our goal is a plan that actually works for your retirement.
💬 Your Turn
Have you ever been mis-sold a product by a bank? Was it insurance dressed up as an FD, or a loan with hidden charges? Share what happened – your experience could save someone else from making the same mistake.
If IRDA is serious about misselling then it should keep the banks from selling Insurance products. Kotak & Hdfc do more of it.
Dear mr Hemant,i m really devasted after my yes bank relationship manager n RM persuaded me to by ULIP of 50 lakh,5lakh each for my two kids for 5 years of max life insurance ulip plan.this is connaught place janpath branch.i am 59 years of age and at the verge of retirement that i informed them.they got all papers signed including ECS for 5years. they finished all papers within 30minutes and got cash transferred to insurance company n i gota message too.I repeatedily kept on telling the yes bank officers(two ladies) that i dont know anything about money management n not interested in ulip n so i m making only fds.this all happened on 28th july 2017 and really i feel devastated n i m worried from where i will pay the premium as i m going to leave my job n will retire.Really i m shocked n terrified n think how inhuman n selfish are the bank staff n the the bank i believed n kept major junk if money n they cheated me very smartly n fooled me.Its max superfast groth plan n they allocated money minus approximately 50thosand out of10lakh.now i plan to discontinue this plan n to take my money back n i dont know how much they will deduct.I m staying in middle easthence cant come back quickly n bond will go to the local address n i have been placed as proposer of insurance.Really i feel cheated n plan to change the bank also.I will be indebted if you give me some idea n solution.sincerely dr b n jha
Dear Dr Jha,
Sorry to hear that. My suggestion is you write a mail to the bank manager CC to [email protected] & [email protected] – ask them to immediately cancel these policies
If you don’t get reply in 2 days – report this to bank & insurance ombudsman.
Hi hemant ji.
Nice article.
I am writing my experience.
I got a telemarketing call to buy some ulip insurance product. When i said that i am not interested then she replied ‘ are u not going to die’ and she hanged the phone..
So i had to register my mobile number in ‘do not disturb registry’ for not getting disturbed by tele calls.
Hemant
fantastic inputs & education to large sect of ignorant but pretending wise folks like me . thanx & keep it up
A few days back one tellecaller called me and told that bajaj allienz have a good plan for you which gave you a vey good return which is gurranted. I told him if this is true, you might have taken it for you an your family so bring all those paper which proove that you have taken it for your own. after seeing the paper I will listen all your plan detail and decide for it, after this he just cut the phone.
Hello Hemant,
I completely agree with you and we face same problems in Pakistan. I work for the leading AMC in Pakistan and we are committed to promote need based solutions to the client but believe me its very difficult to monitor the sales force which operates from every look and part of the country.
Best Regards
Tauseef
Hi Tauseef,
Its same across the globe 🙁
Sir, you said right about Mis selling of insurance by the bank, this is going on because of target of Development officer/Top level management. I think i have told you we are working on a UGC founded project “Lapsation of life insurance” in this our finding is also saying like your article.
Dear Hemant,
I doubt you having been worked for such a bank as your description is so vivid that it reminded me of my startup days at ICICI Bank from where I decided to go alone as ARMFA.
Dear Hemant
I dont understand why bankers are permitted to do non banking business? Today it is financial products, tomorrow it can be real estate or consumer durables or holidays etc.
What will happen to economy when reputation and trustwortyness of the word bank is tarnished. Customers faith is their biggest asset and they have started eating it.
If at all the bank is permitted to do distribution, it should be in the name of a different company with disclaimer that the bank has got no responsibility or gurantee for the third party product. It should also sign a declaration and obtain certificate from the client that the product or services has not been pushed as a precondition of providing banking services as providing loan etc.
please comment of the differebnce between flat rate and diminishing interest rate. How diminishing intest is more than that they are offering
Hi Narayana,
Flat rate of interest is the simple rate of interest calculated on the entire loan amount without considering the amount of loan repaid by you. On the other hand, reducing balance rate of interest (even this is not the effective rate) calculates the interest for each period based on the actual outstanding amount of loan. Flat rate is misleading because it’s not the actual rate of interest you pay. It will reflect the true picture only if you repay the entire loan at the end of the period rather than making monthly repayments.
Hi Hemant
I agree with everything you have mentioned.I would like to share my experience.This happened much before I started reading your posts.One day I received a phone call from my bank.There was a girl on line who introduced herself as my relationship manager.She wanted to see me in connection with my account with the bank.She came to my house and talked to my wife as well as my daughter.She gave me my bank statements and asked me why I was keeping so much money in my savings and fixed deposit accounts and not investing.She impressed me with her smart talk and forced me to buy a ULIP product in the name of my daughter.After a few days I received an envelope containing the policy document which has not been opened by me till date.I have learnt my lesson.Even now I am getting a lot of phone calls from marketing people from Chandigarh, Delhi and Mumbai almost daily who want to give information about some ULIP product.I just refuse to take such calls.
Hi Anil,
I came to that you keep your mobile phone switched off due to these calls. 😉
But why you have not opened the envelope??
Hi Hemant
It is not easy for one to admit mistakes. I know that I have done a mistake and if I open the envelope I am sure to call my relationship manager and say some unpleasant things to her which I want to avoid.
Friends…
Please do not put blames only on bank low level staffs and the relationship managers…
The senior management of the banks are getting/taking heavy pay outs from the insurance companies and AMC’s during the finacial year start itself…..
The senior managment then puts pressure on the RM’s and branch banking staffs to sell insurance and MF business… Or elase the employees are been humiliated by the senior managment & middle management if they dont sell these products… Its still continuing with the banks. Even in the worst part of this HR dept will not come to rescue the people… This is the reality in the Indian Banking system
Why does the RBI & SEBI is allowing to sell Insurance/MF/Gold /Silver via branch banking system where customer potential base is very high. Let the customer visit to the respective places and let him choose what he wants..
The RBI & SEBI has to come up with stringent norms /Ban stating that Banks should not sell MF & Insurance /gold/silver in any of the way to their customer and ask banks concentrate more on banking business alone.
Will RBI & SEBI comes up with this stringent norms??? Will the RBI and SEBI bans banks to sell Insurance /MF/Gold/Silver Will this happen forever???
There is a sea change required in the Indian banking System….RBI &t SEBI in join hands has to ban these products via selling through banks or else the reciprocation of this will lead to customer loose faith in the banks especially with private sector & MNC banks in India. Iam not sure about public sector banks and what are trauma undergoing by employess…
Hi Bijumenon,
Agree with most of your thoughts.
Hi Hemant
There is hardly any activity in financial sector where miss selling is not taking place.Unfortunately, it is not only the agents who miss sell but sometimes friends and relatives are also a party to it.In one instance a close friend of mine forced me to buy a kit of a multilevel marketing company.In the other instance a relative of mine sold me ULIP.The interesting part is that shortly after miss selling both my relative and friend have quit these activities.There is a long list of miss sellers. Recently I have resisted the attempts of bank relationship managers and credit card agents to sell me personal loans and ULIP products.
Thank You for the article as it warns against prevalent misselling practices! In my experience telemarketing people also indulge in such things — a few days back, a MetLife agent called me on the pretext of informing me about the fund value of my existing policy and then “advised” me to exit from it after paying the third yr’s premium and take this new policy which “gaurantees” a 17% return with no market risk!! When I asked if she could email an info brochure which gives this to me in writing, she kept on insisting on fixing appointment with an RM guy because he would be my “life-long” direct contact. I was tempted to ask if this poor RM was a bonded slave to MetLife who did not have the freedom to change his job, but simply disconnected the line.
One fool-proof method to check the sincerity if your new RM from anywhere: tell her/him about your existing insurance cover (which you know is sufficient) and ask innocently if he/she thinks you need one more insurance product. If their answer is “yes,” then yours should be a big “no” to any other financial advice from them.
Hi Madhuri,
Yes call centers are also part of this game. Even if a client calls on toll free no. – there is no guarantee that information shared is true.
IRDA should make it compulsory to record all calls & get them audited. (But IRDA is Kumbhkaran)
I don’t agree with this view beacuse i have been dealing with them for quite some time now. It’s infact the IFA’s/agents who have cheated me by seeling me those funds which give them highest comission. I think SEBi should IFA’s all together since these people are mostly uneducated some class 12 pass or just bare minimum gradute and a few mba holders form low rung institutes but act as if they posses all the knowledge and are bigger scoundrels. I suggest sebi to help poor investors like us to permamnently ban these agents.
Hi Alex,
2 things that instantly came to my mind – I reserve my right to be wrong.
1st you are a banker or
2nd you are frustrated bcoz some “uneducated some class 12 pass” took you for some serious ride.
Pity you Alex!
The Insurance companies are caught by JFM fever every year.Now it has affected banks also because premium growth will lead to increase of their fee based income.Insurance Companies sales staff indulge in misselling with full knowledge but banks staff indulge in misselling without knowing it because this is an effective USP adopted in Insurance companies.Hapless investors are happy because they have saved for 80C before 31st March.
Hi Prakash,
I agree with you but why you are saying “banks staff indulge in mis-selling without knowing it”
Dear Hemant,
(1)I worked in Bank for 22 years and thereafter worked in an insurance for 4 years.I worked under a MD& CEO who takes the bunch of daily complaints for home work.Next day morning the steno can not read the drafts because it got blurred due to drops of water on it.Later we discovered it was not water but the tears of the CEO who weeps everynight on going through the complaint .He was a banker for 35 years.(2) Bankers feel lucky to get exposure in insurance.Before they understand the products, very high targets are alloted and they are motivated and directed by Top marketing Heads of the Insurance Companies.For Top marketing Heads, targets are sacrosant and have to be achieved at any cost(3) Bankers can get foreign trips not by doing bank’s work but by selling(Misselling?) insurance.
Oh it’s turning same as picture shown in article.
Hemant and Readers,
What are your views on SEBI’s moves in last two years?
Do you think that abolishing entry loads on mutual funds and forcing IRDA to tighten ULIP norms were examples of good regulation?
Or do you think that these well-intentioned moves did have negative consequences?
Thanks
Hi Adheesh,
Any change in short term pinches – bcoz no one like change. 😉
I think it is a damn positive step taken by SEBI – it was really needed.
I don’t want to say that SEBI has done all good things at all the time. But at least they are a kind of entity who have the patience and ethics to think and view things from the consumer’s (investor’s) part. A rare expectation from government bodies. But donno what will happen after leadership changes in SEBI.
Any comments..?
Hi Shinoj,
I am just praying that Bhave retains his position.
🙂
Hi Mr.Hemant,
You said it right. I was also a victim of Bajaj Allianz ULIP for TAX saving.
but i feel the root cause of the problem is…. we people dont have minimum understanding of Financial planning. In India, we have excelled how to earn handsome money in rightful ways. But we have no knowledge on money management.
Another reason for mis-selling is also the Greediness of some people, who want to put ten rupees and earn 1000/- in overnight.
That’s why one should have good understanding on how money works, whatsoever the profession one is in. Even mis-spending of money is also a SIN as per our Hindu Mythology.
putting it in nutshell, my point is, as long as one is not educated on good Financial planning and Moral & Ethical values, mis-selling of any product keeps happening.
Hemant! Kudos to you….
Mohan
Hi Mohan,
Thanks for sharing such lovely views.
You have rightly said main reason for such mis-selling is that people are not financial literates.
I am writing one article on Financial Literacy in India – will share it soon.
Dear Customer,
May we request you to send us your complete details such as mobile no, Policy/Claim.no, type of policy and the inconvenience you faced on [email protected] OR [email protected].
Regards,
Bajaj Allianz
Bajaj Allianz,
Thanks for copy pasting a message – which has no relevance in this situation.
Can you really help a guy who is victim of Mis-selling?? If yes please let me know the process.
Regards,
Hemant Beniwal
Recently got a call from kotak mahindra bank regarding some bullshit insurance policy. Usually whenever marketing calls comes to my mobile, I use to say “sorry, Not interested”. But this time I decided to elaborate why I am not interested by telling a lie. All I told was “Actually I was interested in this product and had fixed appointment with your relationship manager on last friday. But he dint came. So not interested.” The marketing guy replied that he will check back. After two or three minutes i got a call from them again. “Sir we are extremely sorry. We called that relationship manager. He was not able to come to you because he met with an accident that day. shall he come today?”
See how instantly they are framing lies to cheat people.
Hi Shinoj,
Then what you replied or just banged the phone. 😉
You will be shocked to know one of the telecaller called Pranab Mukherjee to take loan.(At that time he was sitting in parliament)
Actually I was planning to invite him to my office and hear what he is telling by acting as I don’t know anything, in case they going in a better way. But their response made me to hung the phone.
Yes, I read about the indecent. Even Pranab has no escape. 😮
Oh!! You would have made his say. LOL
I just stumbled across your post tody..
Nice and TIMELY article..
I too have very bad experiences where the bank ‘relationship managers’ abuse your confidence..last month 3 such men from the same bank tried to fool me into buying an ULIP calling it a fixed return scheme..i realized when they talked about tax deductions..even when i asked whether it was an insurance plan…they evaded for a long time and tried to divert me…ultimately i left
therefore it is better to check in the internet before buying ANY product..1 day on the net will save THOUSANDS!!!!!
Hi Dr Frioz,
The way bankers are working is a serious concern.
Sometime back I read this Joke –
A person went to the bank cashier and kept the gun on his head and said – “I just want to en-cash this cheque & if anybody dared to sell me a ULIP, I will shoot the person.” 😉
Rightly said Hemant.
The banking has been missing in banking Industry. There are numerous instances which if downloaded, the internet will have to be replaced by some new technology.
I remember a competition in a private bank where i worked. The competition was for SIP. 60 SIP in a day, a cash price of RS.3000. No cheque for SIP. A form and auto debit form bank. The bank in a region did 3500 SIP in a day From which 3000 were of duration of 6 months. All RMs in the region got the cash price. 🙁
The problem in my view is TOP management. The grassroot can be corrected if the top has a clear vision. But most of the banks the top is interested in targets only which ultimately drop down to the bottom and forcefully misselling happens. In my view its a kind of culture which is inculcated in the banking industry now. WILL REQUIRE A CULTURAL CHANGE TO MAKE BANKING INDUSTRY SHIFT TO REAL BANKING.
Hi Jitendra,
Have you read Confession of a Mis-seller in the end of the post.
“The branch manager was very forthright. He told us to aggressively sell insurance policies and mutual funds. By hook or by crook. “Your focus should be on generating business by selling as many policies and mutual funds as possible,” he said. We were not to be concerned whether the customer required insurance or whether the equity fund being sold was performing well. Our entire sales strategy was to revolve around three simple words: sell, sell, sell.” 🙁
What can one expect from such bankers??
Hi Sumant,
I fully agree with you.
KN Vaidynathan also said “To a lot of people in this country it is very unfortunate that mis-selling seems to be the only form of selling”
you nailed it, mate.
Indeed bankers are the biggest missellers. I know of umpteen cases where ULIPs were sold people who had no business getting into one. Anyway, ultimately it’s our own responsibility to educate ourselves so we are not cheated. Afterall, if we are foolish, we will be looted. I don’t blame these bankers. The whole incentive structure is designed against the common investor.
yes, every word is true.
Thanks Srinivasu