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India Criminalizes Bank Mis-selling

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  Published in Business and Finance on Monday, February 23rd 2026 at 20:52 GMT by ThePrint
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New Delhi, February 24th, 2026 - In a significant development that promises to reshape the landscape of Indian banking and consumer finance, Finance Minister Nirmala Sitharaman yesterday declared that the mis-selling of financial products by banks will now be treated as a criminal offence under the newly implemented Bharatiya Nyaya Sanhita (BNS). This firm stance signals a heightened commitment from the government to protect consumers from exploitative practices and restore trust in the financial system.

Speaking to reporters on Monday, Sitharaman emphasized the need for banks to refocus on their primary function: providing lending and core financial services. Her comments stemmed from growing public and regulatory concerns surrounding the aggressive and often opaque sales tactics employed by some banks, leading to customers being burdened with products they neither needed nor fully understood.

The Finance Minister's pronouncements aren't simply a reiteration of existing consumer protection guidelines; they represent a substantial escalation. Previously, mis-selling, while frowned upon, primarily resulted in penalties and regulatory reprimands. The BNS now elevates the act to a criminal offence, potentially leading to prosecution and imprisonment for individuals and institutions found guilty. This represents a significant deterrent and a clear message that such practices will not be tolerated.

For years, Indian consumers have voiced complaints about banks relentlessly pushing insurance policies, credit cards, and various other financial instruments, often bundled with loans or offered under deceptive conditions. The lack of transparency regarding terms, conditions, hidden charges, and associated risks has been a persistent issue. Customers frequently report feeling pressured into purchasing products they didn't require, or understanding the implications of doing so. The implementation of the BNS seeks to address this systemic problem head-on.

"Mis-selling is an offence now, under the Bharatiya Nyaya Sanhita," Sitharaman stated unequivocally. "Banks must concentrate on their core business and avoid venturing into areas where they would be exploiting customers." This statement highlights a concern that banks have been increasingly focused on maximizing profits through the sale of ancillary products, often at the expense of ethical conduct and customer satisfaction.

The move is expected to prompt a significant overhaul of sales practices within the banking sector. Banks are likely to invest more heavily in training staff to ensure they provide clear, accurate, and unbiased information to customers. Enhanced disclosure requirements and stricter internal controls are also anticipated. Crucially, the BNS empowers regulators, such as the Reserve Bank of India (RBI), with stronger tools to investigate and prosecute cases of mis-selling.

Industry analysts predict that this new legislation will likely lead to a reduction in the proliferation of unwanted financial products being foisted upon unsuspecting consumers. Some institutions might choose to scale back their reliance on cross-selling, instead prioritizing genuine financial advisory services tailored to individual customer needs. However, others predict a temporary dip in revenue from non-core products as banks adjust to the new regulations.

The government's commitment to consumer protection extends beyond simply enacting legislation. Alongside the BNS, the Finance Ministry is also reportedly exploring initiatives to enhance financial literacy among the general public. Increased awareness will empower consumers to make informed decisions and recognize potentially exploitative sales tactics.

This development also shines a light on the broader debate surrounding the role of banks in the Indian economy. While diversification of revenue streams is often seen as a positive, there's a growing consensus that banks should remain focused on their core competency of lending and providing essential financial services. The FM's comments implicitly suggest that banks should not be allowed to stray too far from this core mandate.

The long-term implications of the BNS are far-reaching. If effectively implemented and enforced, it could usher in a new era of transparency and accountability in the Indian financial system, fostering greater trust between banks and their customers and promoting sustainable economic growth.