Sale of fast-growing group credit life cover could be hit

RBI’s proposed tightening of rules to curb mis-selling of products, such as mutual funds or loan-linked insurance, by banks could slow the expansion of credit life insurance, a fast-growing segment tied closely to retail lending, experts said. This insurance segment, although nascent, already garners about ₹30,000 crore in premiums.

“The biggest impact will likely be on group credit life policies sold alongside retail loans,” a senior insurance executive said. “That’s where distribution practices will need to change.”

The draft guidelines prohibit banks from making the purchase of third-party products, including insurance, a prerequisite for sanctioning loans. RBI said banks “shall not bundle the sale of any third-party product or service with any of its own.”

The move targets concerns that bundling add-on products during the onboarding process may mislead customers. The change could hit credit life policies, which cover outstanding loans in the event of a borrower’s death. These policies, sold as group contracts by lenders but covering individuals, have grown rapidly alongside home and retail loan growth and now account for about ₹30,000 crore annually.

India’s life insurance industry generated ₹8.86 lakh crore in premiums last year, including about ₹4 lakh crore from new business, of which ₹1.5-1.6 lakh crore came from retail and ₹2.5 lakh crore from group business. Credit life makes up roughly ₹30,000 crore of this.