New Delhi, Feb 23 (PTI) Finance Minister Nirmala Sitharaman on Monday came down heavily on banks for mis-selling of financial products, including insurance, to customers and asked them to focus on their core business instead.

"Banks should concentrate on their core business...My pet peeve has always been...you are spending more time on selling insurance when it is not required, and conveniently, it fell between two stools (of the RBI and Irdai)," Sitharaman told reporters after her customary post-Budget address to the Central Board of the RBI.

On February 11, the RBI had issued draft guidelines on mis-selling, saying banks will have to refund the entire amount paid by the customer for the purchase of the product or service and also compensate the customer for any loss arising due to mis-selling as per an approved policy. The public has been given time until March 4 to give feedback.

The stricter norms on mis-selling will come into effect from July 1, the RBI had said.

"I am glad that the RBI is coming up with guidance on why mis-selling is not going to be entertained. I think the message should go to the banks that you cannot afford to mis-sell. And this word mis-sell, instead of offending anybody, seems to be one more word in the lexicon," the finance minister said.

Stating that banks were asking customers to buy insurance products even though they already had their required insurance, Sitharaman said the RBI did not monitor such mis-selling, thinking that it fell under the domain of the insurance regulator. Irdai, on the other hand, felt banks are not regulated by the insurance regulator, and customers suffered due to regulatory gaps.

"...individual deposit holder, the citizen of this country who kept saying, why am I being asked to take an insurance when I am giving my property, my piece of land (for) taking a home loan? He wants a loan for which the property (collateral) is already there. So, what is he being asked to de-risk? Why should he come up with another insurance there?" the minister said.

Sitharaman said banks should focus on understanding their customers, strengths, weaknesses, and the business cycle, and in the case of personal account holders, their needs and requirements.

She reiterated that banks should concentrate on their core business, which is mobilising deposits and giving loans, and instead of selling non-bank products, they should focus on improving their low-cost deposit base or CASA (Current Account Savings Account) deposits.

The emphasis should be on knowing the customer, mobilising deposits, and lending responsibly, she said, adding that banks have lost sight of this core banking principle, prioritising other activities over building relationships with customers and understanding their credit requirements.

This has led to an impersonal approach to banking and customer dissatisfaction, and banks must prioritise customer-centricity, understand their needs, and provide tailored services, she added.

Meanwhile, RBI Governor Sanjay Malhotra said that deposit growth in the banking system is around 12.5 per cent, while advances are growing at the rate of 14.5 per cent.

Malhotra said the monetary policy committee will take a decision on further policy rate cut depending on evolving growth and inflation dynamics.

Since February 2025, the RBI has slashed the benchmark policy repo rate by 125 basis points to 5.25 per cent in a bid to bolster growth amid benign inflation. However, in the last policy earlier this month, the MPC decided to maintain the status quo with a neutral stance amid global uncertainty.

The next bi-monthly policy, which is going to be the first for the 2026-27 fiscal year, will be announced on April 6.

Assuring the market about comfortable liquidity, Malhotra said the RBI will take all measures to provide durable liquidity to all market segments.

He further said that the Reserve Bank of India's bilateral switches of government bonds with the Centre were a tool for debt management and not for liquidity management.

He noted that press reports had said the government's gross borrowing aim was on the higher side in 2026-27, and these measures would bring down that target.

The Union Budget for FY27 had pegged the government's gross borrowing aim at a record Rs 17.21 lakh crore for FY27 from a revised Rs 14.61 lakh crore in the current financial year.

The government conducted two tranches of bilateral gilt switches in FY26 totalling Rs 1.13 lakh crore, of which Rs 75,504 crore of four FY27 gilts were switched on February 12.

A switch operation entails replacing a security maturing in the near term with a longer-maturity paper, effectively postponing the government's debt repayment.

"Some of the RBI holdings were maturing (in FY27), which is why we have done a switch with the RBI holdings. We also followed it up with a switch with the market," he said.

"They are all part of our operating policy toolkit; they do not reflect any change in our operational strategy." Asked about the nationwide rollout of Central Bank Digital Currency (CBDC), Malhotra said it is not a substitute for cash or other fast payment systems, and the Reserve Bank of India will introduce it only after evaluating the range of features it offers.

"The CBDC is not, for the moment, a substitute for cash, neither is it a substitute for other fast payment systems. It is there to augment the payment systems that we have," he said.

"Unless and until we have the whole bouquet of features which are available on this CBDC, it will be premature to implement it on a large scale. However, at the same time, there are additional advanced features which other forms of payment and currency do not have," he said.

Launched by the RBI in 2022, the retail CBDC has been positioned by the central bank not as an alternative to the domestic instant-payments system Unified Payment Interface but as a digital version of currency notes. PTI DP JD CS DP BAL BAL

Mis-selling prohibition: banks must stop bundling non-bank products and refund customers with compensation when mis-selling occurs. Banks must stop mis-selling non-bank financial products and prioritise core banking-mobilising deposits, improving CASA, understanding customers, and lending responsibly. The Finance Minister supported RBI draft guidance that mandates full refunds and compensation for mis-selling and highlighted regulatory gaps between banking and insurance supervisors. The RBI characterised upcoming stricter mis-selling norms as consumer protection measures with effect from the announced implementation timeline.