NHB Criticizes Home Financiers for Bundling Insurance Policies with Housing Loans

The National Housing Bank (NHB) has strongly criticized home financiers for engaging in the mis-selling of insurance policies tied to housing loans.

The regulator has instructed housing finance companies (HFCs) to cease bundling insurance products without fully disclosing their terms and conditions to borrowers.

In two separate notices dated December 10, 2024, and March 12, 2025, NHB mandated that HFCs must secure explicit consent from customers before selling insurance and offer policies from at least two different providers. This move aims to enhance transparency and foster competitive pricing.

This directive follows a previous warning issued to HFC CEOs in January, where NHB raised concerns about the disproportionate share of insurance-related earnings in the net interest income of these companies.

The NHB’s letter, which was reviewed by ET, highlighted issues uncovered during regulatory inspections, revealing widespread mis-selling of insurance along with individual housing loans.

Numerous complaints surfaced regarding insurance policies bundled with housing loans, with many borrowers unaware of the specific terms. In some cases, the insurance tenure was found to be shorter than the duration of the loan itself.

“HFCs are advised to refrain from such practices of mis-selling insurance with housing loans,” the NHB stated in its directive. It emphasized that customer consent must be obtained separately for insurance purchases, and borrowers should have access to at least two insurance options to ensure fairness and transparency.

During a January meeting between NHB officials and HFC CEOs, concerns were raised over the significant revenues these companies were generating from insurance sales.

NHB noted that some companies were prioritizing insurance sales over meaningful coverage for borrowers. Additionally, it was observed that many HFCs lacked board-approved policies for insurance distribution and were selling multiple insurance products to the same borrower.

The insurance products being sold included term life insurance, building insurance, critical illness coverage, hospitalization benefits, and disability insurance. NHB flagged that some of these policies appeared unnecessary in the context of housing loans.

Further, NHB discovered cases where customer consent was either not obtained or was taken without clearly mentioning the premium amount and policy terms in the consent form.

The regulator has conducted a study on the mis-selling of insurance policies along with housing loans, and its findings were presented in inter-regulatory meetings at the Reserve Bank of India (RBI) and the early warning group meeting at the Insurance Regulatory and Development Authority of India (IRDAI).