Finance Minister Nirmala Sitharaman has once again called on banks to refocus on core banking activities, cautioning against excessive diversification, aggressive lending practices, and the mis-selling of financial products.
Speaking at a press interaction in New Delhi on Monday, Sitharaman said banks must prioritise deposit mobilisation, customer engagement and prudent lending , the fundamentals of what she described as “core banking.”
“To know your customer, reach out to them, mobilise deposits and make your money from what you are meant to do. That is core banking,” she said.
The Minister noted that a few years ago, several banks had stretched themselves beyond traditional functions, expanding into multiple activities while losing the comfort of low-cost CASA (Current Account Savings Account) deposits. At the same time, the government tightened oversight and pushed for more professional handling of credit assessment and performance standards.
She criticised aggressive lending practices undertaken “too far, too soon,” including loans extended without adequate asset backing. This, she said, weakened banks’ balance sheets at a time when the government had made it clear that automatic capital infusion would not be the norm.
Recalling interactions with banks seeking capital support, Sitharaman said she had conveyed that institutions must improve governance and performance standards to raise capital from the market instead of depending on government funds.
The Finance Minister also flagged concerns around mis-selling of insurance products by banks, describing it as a major issue that hurt customers.
She pointed to instances where home loan borrowers, who had already pledged property as collateral, were asked to purchase additional insurance products despite having adequate coverage. “Why should he cover himself with another insurance when he already has life insurance, health insurance and fire insurance?” she asked.
Sitharaman suggested that regulatory coordination gaps had allowed such practices to persist, as insurance sales by banks sometimes fell between the oversight domains of banking and insurance regulators.
She welcomed the Reserve Bank of India’s move to issue guidance against mis-selling and stressed that banks “cannot afford” to continue such practices.
