In India, banks and agents often push unsuitable financial products to earn commissions, leaving customers like Rajeev Agarwal and Gaurav Santoshwar with regrets and financial losses. As of 2025, regulators call for stricter rules, but experts stress that personal vigilance remains key to dodging these common pitfalls.
What Is Financial Mis-Selling and Why It Matters
Financial mis-selling happens when banks or agents sell products that do not fit a customer’s needs, often hiding risks or exaggerating benefits to boost their own profits. This practice has surged in India, with complaints rising by over 20 percent in the past year alone, according to recent industry reports.
Victims face real harm, from low returns on investments to inadequate insurance coverage. For instance, many people end up locked into policies that promise wealth but deliver far less, costing families thousands in lost opportunities.
The issue ties into broader trends, like the rapid growth of digital banking in 2025, where quick online sales make it easier for mis-selling to slip through. Regulators have stepped up, but gaps remain, making awareness crucial for everyday consumers.
Real Stories of Victims Caught in the Trap
Rajeev Agarwal trusted a friend who was an insurance agent and bought a policy that offered poor returns and low coverage. He paid annual premiums of 35,000 rupees for 22 years, only to realize the life cover of 8 lakh rupees fell short for his family of four.
Gaurav Santoshwar’s wife fell for a cold call promising health insurance, but it turned out to be a discount plan with no real claims process. They lost 35,400 rupees on a two-year term, unable to cancel despite complaints.
Kapil Mehra accepted a loan with promised cashbacks on fees, but the refunds never came, adding unexpected costs. These cases show how trust in agents or banks can lead to long-term regret.
Such stories highlight a pattern where pressure to meet sales targets drives agents to prioritize commissions over customer needs. In 2025, surveys reveal that over 57 percent of bank managers admit to pushing unsuitable products under boss orders.
The Top 5 Common Mis-Selling Traps Explained
Banks profit by steering customers toward in-house products, even if better options exist elsewhere. Here are the five most frequent traps based on recent complaints and expert insights.
- Hiding Key Details: Agents often skip mentioning fees, lock-in periods, or risks, like in unit-linked plans where commissions eat into returns.
- False Promises of Returns: Claims of guaranteed high yields on market-linked products ignore volatility, violating rules against such assurances.
- Bundling with Services: Customers get told they must buy insurance for a loan or locker, which is illegal but common.
- Pushing Wrong Products: Seniors might get high-risk investments instead of safe ones, mismatched to their age and goals.
- Lure of Freebies: Cashbacks or discounts tempt buyers, but the core product often underperforms or carries hidden costs.
These tactics persist because commissions on group products can reach up to 30 percent, far higher than on straightforward options like term insurance.
A 2025 survey of over 1,600 bank managers found that 85 percent lack basic knowledge on fund types, worsening the problem.
How Banks and Agents Profit at Your Expense
Banks earn big through commissions on affiliated insurance and funds, with group products often yielding higher payouts. For example, selling an in-house policy can net agents steady income for years, while customers get stuck with subpar returns.
Pressure from targets leads to tricks like faking consents or misrepresenting policies as investments. This year, grievances against banks topped lists, outpacing those against brokers.
Experts note that limited advisor training and information gaps between sellers and buyers fuel this cycle. In 2025, with India’s financial market expanding, the demand for sound advice outstrips supply, leaving room for exploitation.
Regulators have fined institutions, but penalties often feel light, failing to deter repeat offenses.
| Commission Sources | Typical Payout Range | Impact on Customers |
|---|---|---|
| In-House Insurance | 20-40% of premium | Locked into low-return plans |
| Affiliated Mutual Funds | 1-2% upfront fee | Higher costs than direct funds |
| Bundled Loans with Add-Ons | 5-10% on extras | Unneeded products inflate debt |
| High-Risk Bonds | Variable commissions | Potential total loss, as in 2020 AT-1 cases |
This table shows how profits flow, often at the cost of customer trust.
Steps to Protect Yourself from These Traps
Start by researching products independently before buying. Check official websites and compare options to spot mismatches.
Ask pointed questions: What are the risks? How much goes to commissions? Is this the best fit for my goals?
Avoid rushing into deals based on verbal promises; demand written details. For insurance, opt for term plans over bundled ones for pure protection.
Use tools like regulator portals to verify agents and file complaints early. In 2025, new apps help track investments and flag red flags.
Build knowledge through free online resources, and consider fee-based advisors over commission-driven ones to sideline conflicts.
What Regulators and Experts Recommend for Change
Regulators push for better transparency, like mandatory simple product sheets outlining risks and costs. Stricter penalties could target individuals, not just firms, to enforce accountability.
Experts call for unified oversight across banking and investments to close gaps. Technology, such as automated consent checks, could curb sharp practices.
Recent events, like the 2020 bond wipeouts costing 8,400 crore rupees, spurred changes like higher minimum investments to protect retail buyers.
Ongoing reforms in 2025 aim to boost advisor training, but progress depends on enforcement.
Fighting Back If You’ve Been Mis-Sold a Product
If you suspect mis-selling, gather all documents like emails and recordings, then complain to the bank or insurer first. They must respond within 30 days.
Escalate to ombudsmen: Use RBI for banks, IRDAI for insurance, or SEBI for funds. Act quickly, as delays can bar resolutions.
Many recover funds this way, but prevention beats cure. Share your experiences to warn others and push for industry-wide improvements.
What do you think about these traps? Share this article with friends and comment below on your own stories to help build awareness and drive change.
