A recent Hyderabad consumer commission ruling has put the spotlight on what can happen when insurance is sold through a bank without adequate explanation of the product. The commission ordered an insurer to refund ₹10 lakh to a 73-year-old retired professor and directed the bank and insurer to jointly pay compensation and costs. This was due to the finding that the policy had been obtained without free and informed consent.
The case highlights a broader question for customers: when a bank employee recommends an insurance policy, is the product necessarily the most suitable one? Or is the sale also influenced by the commercial relationship between the bank and insurer?
What Bancassurance Means in India
Bancassurance is the sale of insurance through a bank’s branches and customer base. The bank acts as a corporate agent registered with IRDAI, while the insurer underwrites the policy and settles claims. An amendment to the IRDAI (Registration of Corporate Agents) Regulations, 2015, notified on 5 December 2022, raised the tie-up limit from three insurers per line to nine each for life, general and health. A composite agent can hold up to 27 tie-ups in total.
Banks brought in 49.66% of private life insurers’ individual new business premium in 2024-25, according to IRDAI’s Annual Report 2024-25.
Why the Incentive to Mis-sell Exists
Banks earn commission on every policy they sell. Since 1 April 2023, IRDAI’s Payment of Commission Regulations have let insurers set commission through a board-approved policy within an overall cap on management expenses, replacing product-wise limits. Products that pay more can get pushed harder, particularly when branch staff carry sales targets. The pattern is not new.
In March 2014, the regulator ordered SBI Life to refund ₹275.29 crore. This was because the bank agents sold a two-year premium plan paying 40% first-year commission instead of a single-premium version paying 2%.
Trust adds to the risk. Customers tend to treat a relationship manager’s suggestion as neutral, though the bank is acting as an insurer’s agent. Grievances classed as unfair business practices against life insurers rose to 26,667 in 2024-25 from 23,335 a year earlier, and made up 22.14% of all life insurance complaints. That figure covers every distribution channel, not banks alone.
What Changes From 1 January 2027
The RBI’s Responsible Business Conduct Second Amendment Directions, issued on 15 June 2026, take effect for commercial banks on 1 January 2027. A bank cannot make a loan or any other service conditional on buying a third-party product such as insurance. Where cover is needed as a risk mitigant, the customer can buy it from any provider.
Banks cannot fund a policy out of a sanctioned loan without explicit consent, and bank employees cannot receive incentives from the insurer. Banks must also seek customer feedback within 30 days of a sale, and where mis-selling is established, refund the full amount paid and compensate for any loss.
A Checklist Before Signing at a Bank Counter
- Ask who is selling. Confirm whether the person is a bank employee or insurer staff, and which insurer will issue the policy.
- Treat claims that a policy is “mandatory” with caution. If insurance is described as a condition for a loan, ask for it in writing.
- Pin down the premium commitment: single or regular premium, for how many years, and the total outlay.
- Check every field on the proposal form, including income and address. In the Hyderabad case, the form reportedly showed a ₹1 crore salary against a monthly pension of about ₹57,000.
- Read the benefit illustration, which separates guaranteed from non-guaranteed returns and must be signed by both buyer and seller.
- Confirm where the policy document will be delivered. The free-look window, now 30 days, runs from receipt. The commission found the professor lost hers because the documents went to an address where she was not living.
- Check loan and savings statements for any premium debited without consent.
Where a policy has already been sold on false terms, a written complaint to the insurer and bank comes first, followed by IRDAI’s Bima Bharosa portal and the Insurance Ombudsman. MyRupia’s guide to insurance mis-selling explains how each route works, and its independent advisers can help frame the complaint.
Disclaimer: This MyRupia article provides information based on publicly available government, regulatory and industry sources. It does not constitute investment, financial, tax, insurance or legal advice. Information, examples, market data and expert views may change over time and do not represent a recommendation to buy, sell, invest in or surrender any financial product. Readers should consider their individual circumstances and consult a qualified financial professional before making financial decisions.