NHB Warns Housing Finance Companies Over Insurance Mis-Selling | Image Generated By AI |
New Delhi: The National Housing Bank (NHB) has issued a strong warning to housing finance companies (HFCs) that are forcing insurance policies onto borrowers along with home loans. NHB has made it clear that companies must not impose insurance policies on customers and must clearly explain the terms of the policies before selling them.
Customer Complaints Reveal Unethical Practices
Numerous complaints have surfaced regarding these unethical practices. Many borrowers were unaware of the terms and conditions of the insurance policies sold with their home loans. In several instances, the tenure of the insurance policy was shorter than the loan tenure, leaving customers exposed to risks. NHB also found that some housing finance companies did not have board-approved policies to sell insurance, raising concerns over regulatory compliance.
Additionally, customers were being sold multiple insurance policies they did not need, including term life insurance, building insurance, critical illness coverage, hospitalization benefits, and disability insurance. NHB’s investigation revealed that some of these policies were unnecessary for the borrowers, indicating a deliberate push to maximize revenue rather than provide genuine financial protection.
Lack of Transparency and Consent
NHB noted that in many cases, borrowers were not even asked for their consent before being charged for these insurance policies. Even when approval was taken, policy details such as premium amounts and terms were often not clearly mentioned in the approval documents. This lack of transparency has raised serious concerns about the ethical practices of HFCs.
NHB’s Growing Concerns Over Insurance-Driven Profits
In January 2024, NHB had already cautioned the CEOs of HFCs regarding these issues. NHB is particularly concerned about the disproportionate revenue share that insurance sales contribute to these companies. According to a letter reviewed by The Economic Times, NHB found multiple regulatory breaches in the way insurance was being sold with home loans.
During a January meeting between NHB officials and HFC executives, the regulator raised concerns about how these companies were profiting excessively from insurance sales. The biggest red flag was that in some cases, the insurance coverage period was shorter than the loan tenure. This indicated that the policies were being sold not to provide protection but simply to generate more revenue from unsuspecting borrowers.
Strict Directives Issued to Housing Finance Companies
To curb these malpractices, NHB issued two separate notices—one on December 10, 2024, and another on March 12, 2025—directing HFCs to obtain clear and explicit consent from borrowers before selling any insurance policies. The regulator has also mandated that HFCs offer at least two different insurance options from separate providers. This measure aims to improve transparency and create competition, thereby reducing costs for customers.
The NHB letter explicitly states that HFCs must refrain from mis-selling insurance policies along with home loans. Borrowers must be given clear choices and detailed information about their policies before they are enrolled.
NHB’s Investigation and Future Regulatory Action
NHB conducted a detailed study on the mis-selling of insurance bundled with home loans. The findings of this study were shared with regulatory bodies, including the Reserve Bank of India (RBI) through its Inter-Regulatory Forum Meeting and the Insurance Regulatory and Development Authority of India (IRDAI) through its Early Warning Group Meeting.
As part of its housing market oversight, NHB has underscored the importance of fair lending and ethical insurance sales. The regulator is now closely monitoring the compliance of HFCs and may take further regulatory actions if these firms fail to correct their practices. This crackdown is expected to bring greater accountability to the housing finance sector and protect borrowers from being exploited.
