₹21,773 Crores in Commissions: How Banks Are Profiting at the Cost of Customers

Have you ever felt pushed into buying a financial product by your bank?

You’re not alone and new data shows just how big this problem is. 

According to a powerful report by 1 Finance Magazine, the top 15 banks in India earned a jaw dropping ₹21,773 crores in just one year (FY24) from commissions by selling life insurance, mutual funds, and other financial products.

But here’s the catch: these products are often sold not based on what’s right for you but what pays the highest commission to the seller.

The Hidden Game of Mis-Selling

The report exposes a harsh reality:

Over 57% of bank employees admit they are instructed to sell financial products even if they don’t suit the customer’s needs.

This is called mis-selling, and it happens when:

• Products are sold using incomplete or misleading information
• Customers are made to believe it’s compulsory to buy insurance to get loans or lockers
• Elderly investors are pushed into high-risk, market-linked policies they don’t need
• Agents focus on what earns them more commission, not what benefits you

The result? Customers get locked into poor-performing products, often losing money, while banks smile all the way to the commission counter.

Why Banks Prefer Life Insurance Over Mutual Funds

Let’s break it down with some facts from the 1 Finance Magazine report:

• Banks earn 2 to 11 times more commission on insurance than mutual funds
• Up to 65% of your premium goes as commission to the bank in the first year
• Banks often sell insurance from their own group companies up to 100% in some cases
• Mutual fund commissions are regulated and capped, but insurance continues to be a high-margin product

In short: Life insurance is the most profitable product for banks even if it’s not the best for you.

The Outcome? You Lose

• 49% of insurance policies lapse within 5 years either because customers can’t afford them or realise they were misled
• 43.3% of benefits paid by insurers go towards surrendered or lapsed policies, meaning many customers walk away with a loss
• Meanwhile, the mutual fund industry, with stricter rules and better transparency, has shown a CAGR of 20.7% over the last decade compared to 10.4% in insurance

And yet, banks push insurance more. Why? Because it pays more.

So, What Should You Do?

If you're unsure whether the product offered by your bank suits your goals, don’t rush. Every financial decision should be aligned with your life goals, cash flow, and risk tolerance.

This is where I can help.

✅ I provide personalized investment planning based on your financial goals and risk appetite

✅ I am licensed by SEBI and IRDAI

✅ You can also explore my book, What the Heck is Happening with My Money?, a practical personal finance guide for every Indian household

👉 Available on Amazon

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Final Thoughts

Trust is the foundation of any financial relationship. But as the latest report shows, that trust can be misused.

Before saying yes to the next insurance or mutual fund pitch from your bank, take a step back and ask:

Is this in my best interest or just theirs?

Let’s talk. Let’s plan. Let’s grow your wealth your way.

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Source: Based on insights from “The Mis-selling Menace” by 1 Finance Magazine 

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