Finance Minister Nirmala Sitharaman (23 February 2026) cautioned banks against mis-selling insurance and questioned the tactics behind the loan-stage insurance push. Earlier, the RBI (11 February 2026) issued draft (proposed) directions to curb conditional selling, compulsory bundling, and manipulative “dark pattern” practices—especially around borrower-linked add-ons sold during loan processing.
By Arosh John, Founder, John Real Estate (MahaRERA Reg. No. A51700001835) | Editor-in-Chief, Thane Real Estate News (TREN)
Mumbai | 26 February 2026
Mumbai: For many home-loan borrowers, the most common pressure line comes at the worst possible time—right before sanction or disbursal: “Insurance is mandatory.” In February 2026, that loan-stage selling practice returned to public focus after Finance Minister Nirmala Sitharaman cautioned banks against mis-selling and urged them to refocus on core banking—deposit mobilisation and lending.
This comes as the RBI moves to tighten sales conduct across branch counters and digital journeys. The central bank has already circulated draft (proposed) directions aimed at improving disclosures, strengthening consent standards, and curbing forced bundling of add-on products.
What The Finance Minister Said
On 23 February 2026, Sitharaman publicly questioned why banks are spending more time selling insurance and raised concerns about insurance being pushed alongside loans, including in situations where borrowers already provide meaningful security/collateral. Her message to banks was direct: avoid mis-selling and prioritise core banking and responsible lending.
What Insurance Is Typically Being Pushed At The Loan Stage
The remarks, as reported, refer broadly to insurance being pushed during loan processing rather than naming a specific product. In practical terms, when borrowers say “insurance is being forced,” it is usually one (or a mix) of the following:
- Borrower-Linked Covers: “Loan protection”, “credit life”, or “EMI cover” plans sold as a must-have with the loan
- Rider Bundles: Personal accident or critical illness riders packaged with the loan
- Life Policies Via Bancassurance: Life insurance policies presented as a default add-on during loan processing
- Home Insurance Sold As A Bundle: Home insurance offered during the loan journey—sometimes beyond what is strictly required to protect the lender’s collateral
The issue isn’t insurance as a concept. The issue is how it is sold—as a condition, under urgency, with incomplete disclosure, or through bundled consent.
What The RBI Draft Directions Propose
The RBI’s 11 February 2026 framework is explicitly draft/proposed (not final at the time of writing). The intent is to tighten how banks and other regulated entities sell both their own and third-party financial products.
Key thrust areas include:
- No Conditional Selling: A core service (like a loan or its servicing) should not be made dependent on buying another product
- No Compulsory Bundling: Add-ons should not be sold as if they are a condition for sanction or disbursal
- Suitability, Not Just Signatures: Customer profile and product complexity are expected to be considered—beyond tick-box consent
- Ban On “Dark Patterns”: Draft proposals aim to prevent pre-ticked boxes, confusing opt-outs, and interface tricks that steer customers into unintended purchases
The RBI has sought public feedback on the draft and indicated a rollout later in 2026, with a proposed effective date of 1 July 2026, subject to final notification.
The Accuracy Point Buyers Must Know: Property Insurance Vs Borrower Insurance
To keep this technically correct:
- Property/Structure Insurance (Collateral Protection): Banks can require the property (their collateral) to be insured as part of prudent lending
- Borrower Insurance (Credit Life/EMI Cover/Life Policy Add-On): This should be a choice, and it should not be presented as a condition for loan sanction/disbursal
Even where property insurance is required, borrowers should seek clarity on whether they can purchase a compliant policy from an insurer of their choice, rather than being forced into a specific sales channel.
The Cost Angle Buyers Should Understand
Public discussion in February 2026 is centred on mis-selling practices, not an official claim about “high insurance rates.” Still, borrowers should watch the premium structure, as it affects total outflows.
Single Premium Vs Regular Premium
- Single Premium: One upfront payment for multi-year cover. If this is paid at disbursal and added to the loan amount, it increases the principal and can increase the total repayment over the loan tenure.
- Regular Premium: Periodic payments (usually annual). This typically does not inflate the loan principal and is easier to evaluate year by year.
The simple check: Ask whether the premium is being financed inside the loan. If so, request the total repayment impact in writing.
Borrower Protocol If You Hear “Mandatory”
If a lender says “insurance is compulsory,” shift from verbal pressure to written clarity:
- Ask For The Clause In Writing: “Is it mandatory for sanction/disbursal? Please share the clause.”
- Identify The Bucket: “Is this property/structure insurance or borrower insurance?”
- Ask For Choice: “Can I submit a compliant policy from my chosen insurer?”
- Demand The Full Policy Document: Coverage, exclusions, and claim process—not a sales summary.
- Confirm Whether It’s Financed: “Is the premium being added to my loan amount?”
One clean line that keeps the conversation professional:
“Please process my home loan independently. I will review insurance separately. If collateral insurance is required, I will provide a compliant policy from my chosen insurer.”
Also READ: RBI CIBIL Rule Changes 2025 — New Credit Score System Explained for Home Loan Borrowers
About The Author
Arosh John is the Founder of John Real Estate (MahaRERA Reg. No. A51700001835) and Editor-in-Chief of Thane Real Estate News (TREN). With over a decade of on-the-ground transaction experience across Thane and the Mumbai Metropolitan Region, he is known for buyer-first advisory built on micro-market pricing intelligence, an understanding of infrastructure-led valuation, and transaction/documentation discipline. His work focuses on translating policy and market shifts into practical guidance for end users and investors, strengthening his position as a leading Thane real estate expert.
Disclaimer
This news report is published for public awareness and general information and does not constitute legal, regulatory, tax, insurance, or financial advice. Readers should rely on written terms and official communications from banks/insurers and seek professional advice where appropriate. All brand names, trademarks, and logos are the property of their respective owners.
