Why Banks Sell Insurance: Understanding the Bancassurance Boom in India

What Is Bancassurance?

Originating in France, the model was adapted in India to deepen insurance penetration and enable banks to diversify their income streams beyond traditional lending and deposit activities.

Revenue Over Routine: Changing Priorities in PSBs

The model has brought notable changes to the functioning of Public Sector Banks (PSBs). With commissions from insurance sales to offering an attractive income source, banks are increasingly focusing on third-party product (TPP) sales, often at the cost of their core functions — such as credit disbursal and deposit mobilisation.

Training modules for bank staff are now heavily oriented towards sales and cross-selling strategies. According to industry sources, performance incentives in many banks are tied more closely to sales targets than to traditional banking metrics like loan recovery or customer service.

Integration With Private Insurance: Changing Partnerships

Many PSBs have entered into tie-ups with private insurance companies or floated their own subsidiaries. Banks such as State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BoB) have launched or promoted their insurance ventures — for instance, SBI Life and IndiaFirst Life (backed by BoB). These partnerships reflect a broader alignment of public banks with private capital markets.

Speaking to Kanal, Soumya Datta, the joint convenor of Bank Bachao Desh Bachao Manch (BBDBM) and a former General Secretary of All India Bank Officers’ Confederation (AIBOC), noted, “If you see, 90% of the new business of the LIC comes through the agency channel, whereas private insurance companies make tie-ups with banks to increase business.”

Regulatory Concerns and Risks of Mis-Selling

Critics argue that this shift has increased the risks of unethical sales practices, with numerous cases emerging where customers have allegedly been sold insurance products without informed consent. Vulnerable sections — such as elderly individuals or customers from remote and rural areas — are particularly at risk.

Datta said, “To achieve targets, banks sell insurance schemes forcibly, even without consent. BBDBM has come across several cases of mis-selling of TPPs, and we have been providing legal aid to many victims including semi-literate and illiterate commoners from remote regions.”

He also pointed out that structural changes such as account number portability are on the horizon. “Banks have started implementing unique account numbers. Portability of bank accounts is the future... Here, banks need to sell TPPs to retain customers,” he said.

Broader Economic Implications

The growth of bancassurance reflects a broader policy shift in India’s banking sector — one that leans towards privatisation and global financial integration. Banks are moving away from their foundational role as public service institutions towards functioning as financial supermarkets.

Economist Prof. C.P. Chandrasekhar warned that this transformation could dilute banks’ role in promoting financial inclusion. Describing the traditional model, he said profits were generated primarily through net interest income — the difference between loan interest and interest paid to depositors. However, under the bancassurance model, “Banks drift away from the basic idea of financial inclusion,” he told Kanal.

Chandrasekhar added, “You end up with a situation where it affects—the core role of the banks gets undermined.” He warned that banks may begin reducing credit to high-risk or low-return sectors such as agriculture, pushing borrowers into informal channels.

Risk to Public Interest and Accountability

Highlighting systemic risks, Chandrasekhar noted, “If you carry a larger amount of credit risk, then the possibility of default and therefore your capital getting affected is high.” He further cautioned against regulatory lapses, saying, “You're creating an environment where you will have rogue managers.”

He termed the bancassurance model as a backdoor route to privatisation. “You are selling SBI’s goodwill to the private sector,” he said. “If the government, which is the owner, emphasises profit and not inclusion, even public banks become less inclusive.”

Policy and Oversight: The Road Ahead

Experts and activists argue that the rise of bancassurance demands more rigorous oversight. As banks increasingly adopt roles once reserved for financial intermediaries and insurance brokers, concerns are mounting over regulatory gaps, customer protection, and the long-term impact on public banking.

The Economic and Political Weekly (EPW), in a 2023 commentary, highlighted how the bancassurance model may increase delivery efficiency but also carries the risk of “mission drift,” especially in institutions historically tasked with public service and development financing.

As India moves towards account portability and deeper integration with global financial systems, the role of public banks in serving social and economic priorities may continue to evolve — or erode. Whether this evolution will benefit customers or shift the burden of profit generation onto them remains a question for regulators and policymakers. The ongoing transformation of PSBs into fee-generating service points, if unchecked, could alter the social mandate of Indian banking in irreversible ways.