FD or Insurance? Banks Under Fire for Mis-Selling Policies in the Name of Fixed Deposits — Here's What RBI and Finance Minister Said

Customers across India are being misled into buying insurance policies disguised as fixed deposits. RBI and the Finance Ministry warn banks against this unethical practice and call for transparency.

Have you ever walked into a bank to open a Fixed Deposit (FD) but ended up unknowingly purchasing an insurance policy instead? If yes, you’re not alone. A growing number of similar cases have surfaced across the country, revealing a troubling pattern of mis-selling by bank staff — often without clearly informing the customer of the actual financial product being sold.

This deceptive practice has triggered concerns at the highest levels, prompting strong reactions from both the Reserve Bank of India (RBI) and the Union Finance Ministry, who have stressed the need for strict transparency and warned of stern action against mis-selling.

What’s Really Happening?

Across multiple bank branches in India, customers — especially senior citizens and those with limited financial literacy — are being offered investment products that are pitched as FDs, but are actually insurance-linked savings plans. In many cases, customers are not made aware of the lock-in periods, the nature of returns, or the fact that their capital is not as liquid or secure as an actual fixed deposit.

This often leads to:

• Long-term lock-ins, sometimes up to 5–10 years

• Hefty penalties on early withdrawals

• Lower-than-expected returns or commission-driven plans

• Confusion over whether the product is bank-regulated or insurance-regulated

Why Is This Problematic?

Breach of Trust: Customers trust banks with their money. Misleading them into buying something they didn’t intend to purchase is an ethical failure.

Financial Insecurity: People may park their savings assuming easy liquidity — but end up locking funds in plans they can't access.

Commission-Based Selling: Bank employees and third-party agents may prioritize commissions over customer interest.

RBI's Response: "Transparency is Non-Negotiable"

The RBI has taken serious note of this growing malpractice. In a recent statement, it reminded banks that selling third-party products like insurance must come with full disclosure, written consent, and product clarity.

The central bank emphasized:

• Clear distinction between deposit products and insurance schemes

• Proper training for staff to avoid mis-selling

• Documentation and disclosures in regional languages, if needed

• Strict internal audit and complaint redressal mechanisms

📌 RBI: “Banks must maintain integrity and transparency in all customer dealings. Mis-selling damages the trust in the banking system.”

What Did the Finance Ministry Say?

Finance Minister Nirmala Sitharaman also addressed the issue, stating that such practices are "unacceptable" and that customers should never be pushed into products without full understanding.

She assured:

• Stronger regulatory supervision

• Clear labeling of financial products

• Enhanced consumer protection laws for bank customers

• Accountability of bank staff involved in such incidents

How to Protect Yourself

If you’re planning to invest in an FD or any financial product at a bank:

✅ Ask for written documents clearly mentioning product type (FD, mutual fund, insurance, etc.)
✅ Avoid signing blank forms or rushing through paperwork
✅ Check for lock-in periods, returns, surrender clauses, and charges
✅ Confirm if it's a bank-regulated product or sold on behalf of another financial entity
✅ Take time to decide — do not fall for urgency tactics like “limited offer” or “exclusive deal”

If you suspect mis-selling:

• Contact your bank’s grievance redressal officer

• File a complaint on the RBI’s CMS portal

• You can also approach the IRDAI if it's an insurance-related product

Final Thoughts

The line between genuine financial advice and commission-driven sales is blurring, and it’s consumers who often pay the price. As RBI and the Finance Ministry tighten the screws on mis-selling, awareness is your best defense. Before committing your money to any product — read, ask, and verify. An FD should never turn into a financial trap disguised as a benefit.