RBI Guv Shaktikanta Das asks banks to curb mis-selling of products

New Delhi: Reserve Bank of India (RBI) Governor Shaktikanta Das, on Monday, asked banks to curb unethical practices, such as mis-selling of products or the opening of accounts without proper know your customer (KYC) verification, saying it would lead to supervisory scrutiny and financial penalties.

“Staff incentives should be carefully structured to avoid encouraging mis-selling or unethical practices. While such practices may yield short-term gains, they ultimately expose the bank to significant long-term risks, including reputational damage, supervisory scrutiny, and financial penalties,” Das said at a conference of directors of private sector banks organised by the RBI in Mumbai.

Das asked bank boards to strengthen the internal governance framework to curb unethical practices. “Ensuring fair lending practices and implementing robust grievance redress systems are critical to protecting customers’ interests,” he said.

Mis-selling of products is rampant in the Indian banking and insurance sectors. As per a recent survey by 1 Finance Magazine, over 57% of bank relationship managers in India admitted to mis-selling financial products under extreme pressure to meet sales targets.

Earlier this year, the government’s Economic Survey 2024 had also expressed concern over the mis-selling of financial products, noting that it is especially rampant in the insurance sector and can’t be dismissed as a few rogue agents   

The RBI Governor also expressed displeasure over misclassification of customer complaints. “It is disheartening to see the nature of some of the complaints and the observations in our inspection reports. There are instances where complaints are misclassified as customer queries,” Das said.

“We also come across instances of rejected grievances not being escalated to the internal ombudsman of banks. I would like to urge the Boards and their Customer Service Committees to closely look into these aspects to ensure that banks have a genuine commitment to customer centricity,” he added.

According to the RBI Governor, the Indian banking sector is transitioning through a time which is replete with opportunities as well as risks and challenges.

He said the factors like technological advancements, the rise of new-age fintech entities, third-party dependencies and climate change are reshaping the country’s economic landscape.

Das advised bank boards to adopt a proactive approach in identifying and addressing potential challenges. “The Board needs to continuously assess external factors like regulatory changes, shifting market winds, overall macroeconomic changes and advances in technology. Boards should also be fully cognisant of the organisation’s internal strengths, vulnerabilities, and operational conditions, so that they have a clear situational awareness,” he said.