Finance Minister Nirmala Sitharaman on Monday sharply criticised banks for pushing unwanted financial products like insurance to customers. She said such mis-selling is now an offence under the Bharatiya Nyaya Sanhita.

Speaking after her post-Budget meeting with the Central Board of the Reserve Bank of India, Sitharaman said banks must return to their core role instead of acting like insurance agents.

She pointed out that many banks force customers to buy insurance even when it is not needed. Often this happens during loan processing. For example, people taking home loans are asked to purchase insurance despite already offering property as security.

The minister said this practice continued for years due to a gap between regulators. The RBI believed insurance sales fell under the insurance regulator. Meanwhile, the Insurance Regulatory and Development Authority of India felt banks were outside its direct control. In the middle of this confusion, customers suffered.

Earlier this month, the RBI issued draft rules to curb mis-selling. Under the proposed norms: Banks must refund the full amount paid by customers for wrongly sold products. They must also compensate customers for losses caused by such sales. Public feedback on the draft is open until March 4. The new rules are expected to take effect from July 1.

Welcoming the move, Sitharaman said the message must be clear. Banks cannot afford to mis-sell. She added that institutions should focus on understanding customer needs rather than pushing extra products for profit. Her remarks signal a tougher stance on unfair banking practices and stronger protection for depositors.