Curb insurance misselling, use bad bank for NPAs: FM to banks

FM Nirmala Sitharaman unveils a commemorative coin of ₹100 on the occasion of 100 years centenary of SBI Horniman circle branch in Mumbai. 

Finance Minister Nirmala Sitharaman on Monday emphasised the need to retain public confidence in India’s banking system by urging lenders to rein in mis-selling of insurance products and other activities that raise customer costs, and be more assertive about resolving distressed assets through the bad bank NARCL.

“Your core business is to mobilise deposits and lend money. I wish that core is looked into again, only to pursue it further,” Ms. Sitharaman said at an SBI event, singling out banks’ distribution of insurance products as a cause of concern.

“I wish to say this for due consideration of banks’ boards. While this model [bancassurance] has significantly contributed to improving insurance penetration across the country, it has also raised concerns about instances of mis-selling, and I would say, contributed in indirect ways of increased cost of borrowing for the customers,” she pointed out.

“So banks will have to look at it with a lot more emphasis on their core banking activities and not burden customers with insurance which they don’t require. Banks must prioritise on transparency, ethical practices and clear communication strategies for us to earn the trust of the people,” she stressed.

On the NARCL, which has acquired 18 accounts with a loan exposure of around ₹92,000 crore so far, the minister said banks can be more ambitious and the NARCL more proactive in getting this working “far more speedily”.

“I will say a few things on which I would like the bank management, particularly of SBI, to pay a bit more attention. Banks need to be equipped to deal with the flow of distressed assets and the markets need to be equipped to channel investments into the reconstruction and revival of such assets. This is where the NARCL can be used,” she remarked.

“The establishment of a government-backed company for the aggregation and resolution of distressed assets will further improve liquidity and competition in the market. This was my feeling when we set up the NARCL,” she said. The NARCL was formed in 2021 to clean up stressed assets in the banking system.

“Banks should serve as a vital pillar of trust building with the public and trust should be built by the way you offer your portfolios, by the way you offer your service and by the way, you look at each customer’s requirement without clubbing them into one class, particularly in the context where banks facilitate the distribution of insurance products,” the minister noted.

She also nudged public sector lenders to increase their small ticket lending operations, especially to Micro, Small and Medium Enterprises or MSMEs. The Finance Ministry, she said, had recently cleared additional lending of ₹1.54 lakh crore on top of the current lending target of ₹4.21 lakh crore for the sector. The target for 2025-2026 is ₹6 lakh crore and the following year at ₹7 lakh crore, she added.