Rs21,773 Crore Earned in Commissions: How 15 Banks Profit from Mis-selling Insurance, Mutual Funds

Moneylife Digital Team 06 June 2025

Consumer Interest

India’s top-15 banks earned a staggering Rs21,773 crore in commissions from selling life insurance, mutual funds and other financial products in FY23–24 — much of it by promoting schemes from their own group companies. In the case of Kotak Mahindra Bank, 100% of the life insurance commissions came from Kotak Life Insurance. Similarly, 99.1% of mutual fund commissions earned by Canara Bank came from selling Canara Robeco Asset Management Company’s (AMC) schemes. Overall, they earned as much as 25.4% of their total income from commission, exchange and broking fees in FY24.

These findings come from a report titled The Mis-selling Menace, published by 1 Finance Magazine which highlights serious concerns around product mis-selling, excessive commissions and lack of consumer protection in India’s financial sector. The report reveals that banks earn between 2x to 11.3x more commission on life insurance policies than mutual funds — creating a strong incentive to aggressively push insurance products, often regardless of consumer need or suitability.

Among the most alarming data points is that 43.3% of all benefits paid by the top-10 life insurers are related to surrendered, withdrawn or lapsed (SWDL) policies, indicating that a significant number of customers either regretted their purchase or could not continue paying premiums. The report argues that these are not policies held for protection or long-term savings, but rather products aggressively sold to customers who may have misunderstood them or were misled about the expected returns.

The report makes a strong case that the financialisation of household savings in India is being driven less by informed consumer choice and more by aggressive cross-selling practices, particularly within banks. It documents how insurance policies are frequently bundled with bank services — such as loan disbursals, locker facilities and special savings accounts for senior citizens — with relationship managers (RMs) using privileged access to customer data to push high-commission products.

In many cases, traditional insurance plans are pitched as tax-saving investments or fixed deposits, while senior citizens are sold long-term unit linked insurance plans (ULIPs) or endowment plans that they neither need nor can afford. These tactics lead to high levels of policy discontinuation, low returns for consumers and steady revenue for banks and insurers.

The report contrasts the relative success of Securities and Exchange Board of India’s (SEBI) reforms in the mutual fund industry—which banned upfront commissions and introduced transparent direct plans—with the limited impact of insurance regulatory and development authority of India’s (IRDAI) consumer protection efforts. While SEBI implemented an all-trail commission model in 2018, life insurance distributors are still allowed to earn up to 65% of the first-year premium as commission, especially on traditional products.

Although IRDAI has introduced several initiatives — including the Bima Bharosa portal, Pre-issuance Verification Calls (PIVCs) and expense caps under the 2023 regulations — the report argues that enforcement remains weak and consumer grievances are still widespread.

The findings also expose a significant conflict of interest in how banks operate. A large share of the commissions earned on life insurance and mutual fund products come from selling products of their own group companies. According to the report, seven out of 10 banks derived over 50% of their insurance commissions from related-party insurers and six out of 10 banks did the same for mutual funds.

This vertical integration limits consumer choice and creates an environment where sales targets and incentives override fiduciary responsibility. Bank RMs, who are often the first point of contact for financial advice, are pressured to meet product targets even when the offerings are unsuitable — a practice acknowledged in the report’s survey, where over 57% of RMs said they were instructed by superiors to sell regardless of fit.

Persistency ratio — the proportion of policies still in force after a certain period — is one of the clearest indicators of product suitability. In this case, a low persistency ratio (such as only 51% of policies surviving beyond the 61st month) suggests that a large number of policyholders are either unable or unwilling to continue with their policies. Such high dropout rates suggest widespread mis-selling — whether due to misleading sales pitches, poor product understanding or the unaffordability of premiums over time. The result: policyholders lose value, while distributors walk away with hefty commissions.

These findings echo concerns that consumer forums, courts and organisations such as Moneylife Foundation have raised for years — that the mis-selling of financial products — particularly to senior citizens and first-time investors, is not just a by-product of poor financial literacy, but a systemic issue, incentivised and institutionalised within the financial system.

Yet, consumer redress mechanisms remain fragmented and mis-selling often goes unpunished. The sheer scale of the problem calls for deeper regulatory scrutiny, stronger deterrents and perhaps, as the report implies, a complete rethink of whether banks and insurers should be allowed to operate as both product manufacturers and distributors under the same corporate umbrella.

Comments

User

parimalpandya16

7 days ago

Only hope you have to get a news on people preference for the other sources of investment rather than insurance nowadays

parimalshah1

1 week ago

Sab ki mili-bahgat hai, common man ko lootneki. Loot is the correct word.

GOWRISHANKAR

1 week ago

Any amount of EXPOSING these rascals (aka Banks) will NOT bring about any change in their agenda. They very well know that there is no money to be made in banking industry as all the PSU banks are forcibly directed to target their lending in BEKAAR schemes like Mudhra, IRDP, and other subsidised schemes which ultimately are written off using the TAX PAYERS money. The only way to keep the 'Choola' burning in the banks is to MIS-SELL these 'chutiya' products specially targeted at Seniors who are the only hapless and gullible public who have some money to invest. I am now fighting a case with M/s Canara Bank who MIS-SOLD a ULIP Product to a Senior under the garb of a Savings Product assuring (orally ofcourse) 12% returns. The so called Banking Ombudsman (who has a conflict of interest being a coterie of banks & Insurance Cos) had announced a paltry compensation of Rs.10,000 after a case filed with them. The issue has now gone to the Consumers Redressal Forum and he awaiting a decision in the matter. Let us wait n see as to what may be the outcome.

rbalaveni

Replied to GOWRISHANKAR comment 1 week ago

One of my friends invested 10 lacs n a bank life insurance, one time investment with assurance he will get 30 lacs aaft? 10 years.He invested only because of the branch head compulsion. Now he approached for refund .The bank told it regular premium of policy, as he jas not paid yearly premium he will get refund of 140000 only.He don't know what to do.

miabb7816

1 week ago

Like "War is a necessary evil",Mis-Selling once that was exclusive domain of Insurance behemoth State run LIC has become a happy hunting ground for banks of all hues led by the Pvt banks who have mastered it not only as "An Art of Extending Financial Service" but also as an "Art of Mis-Selling".There is NOT an iota of doubt that by extending this service they have tried to bridge the unmet financial cum protection coverage but in the meele pushed their products from their stable conveniently forgetting the much shouted cardinal principle that Insurance is a matter of Solicitation. In our country Insurance products are NOT seen as product for PROTECTION but more as INVESTMENT cum PROTECTION products.Banks and agents,popularly known as Financial Adviser seldom talk and put emphasis on TERM Policy with enhanced Protection coverage at a lower premium backed by lower commission pay out.Moreover,how bank could deny the lure of "Non Interest Income" without allocating precious Capital? So this "Tom and Jerry" chase would continue and gullible investors would be exposed to such Mis-Selling that can be construed as Collateral Damage of Financial Service. Bank knows pretty well which side of the bread is buttered and the "Art of Circumventing" the regulators Lakhsman Rekha.Here lies the role of Financial Literacy.

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