Why do banks sell you insurance and other financial products even when you refuse?

When you visit banks, their representatives often try to sell you various financial products. It could be an insurance plan or a regular mutual fund scheme. These days, bank representatives or relationship managers even reach out to customers through phone calls and emails. Have you ever wondered why this happens repeatedly, even when you show no interest?

In a LinkedIn post, Bahl said the "Commission Income-to-Total Income Ratio" indicates how much of a bank's total income comes from selling fee/commission-based products and services. "Whenever you walk into a bank, they try and sell you a financial product. What you don't know is that they make huge commissions on such products," he said.

Is it wrong?

It's not wrong, as banks always make disclosures regarding various fees, like the loan processing fee, mobile banking fees, etc.

However, on certain financial products like life insurance, they earn a lot of commission, but it's generally not conveyed to customers by relationship managers.

"But when we speak of life insurance products masquerading as investment products, banks make up to 65% commission income on your first-year investment. So, if you commit to invest ₹1,00,000 for the next 7-8 years, banks will make ₹65,000 in the first year and 2%-5% in the subsequent years," said Bahl.

According to the 1 Finance Magazine data shared by Bahl, 15 leading banks earned over ₹21,000 crore from "Insurance, Marketing and Distribution Business" in FY24.

The commission income to total income ratio was highest for Axis Bank (25.2%), followed by IDFC First Bank (23.6%) and Yes Bank (23.3%). Public sector banks like Canara Bank, Indian Bank, Union Bank of India, and Bank of Baroda had the lowest commission income to total income ratio.

"Banks have access to the intelligence that no one has. How much do you make, how much spend, and how much do you invest. Based on this data, they call you when you have high bank balances and suggest how much to invest," said Bahl.