The commission engine

The most profitable thing HDFC Bank sells is not a loan. It is other people's insurance - and the commercials behind that sale, long hidden in the fine print of annual reports, are now public: thousands of crores a year, earned one reluctant policy at a time.

Ask a relationship manager at India's largest private bank what the job really is, and the honest answer rarely involves banking. The job is conversion. A fixed deposit that matures is not a safe pile of money; it is a lead. A salary account is not a convenience; it is a pipeline. And at the end of that pipeline sits the product with the richest commercials in the building: an insurance policy, usually from a company the bank itself owns.

This is not a secret so much as an unadvertised fact. It lives in annual reports, in regulatory consultations, in the disclosures of the insurers themselves. It took a curious research house, a serious set of regulatory filings, and a business press that finally started adding the numbers up to put a figure on it. The figure is staggering.

₹21,773 crore, and one bank at the top

In June 2025, Moneycontrol reported on a study by the research firm 1 Finance, bluntly titled "The Mis-selling Menace". Its headline finding: India's 15 leading banks earned ₹21,773 crore in commissions in FY24 alone, largely from selling life insurance, mutual funds and other financial products - many of them manufactured by their own group companies.

At the top of that table, by a distance, sat HDFC Bank: ₹6,467 crore in commission income in a single year. The State Bank of India, a bank several times its size by reach, earned ₹3,893 crore. Axis Bank earned ₹3,320 crore. No other bank in the country converts its customers into commission revenue as efficiently as the blue grid.

Read that number the way a depositor should. ₹6,467 crore is not interest earned on loans. It is a toll - collected when a customer who came in for a savings account walked out with a unit-linked insurance plan, an endowment policy, a credit-protection cover bundled into a loan. It is money that moves from the customer's pocket, through the insurer's books, into the bank's fee income line. And it recurs every year, because every year a fresh cohort of deposits matures and a fresh cohort of targets is handed down.

The growth curve nobody advertises

The commission engine has not been idling. According to figures cited by Mint, HDFC Bank's insurance commission income was ₹3,974 crore in FY24 and ₹6,308 crore in FY25 - a jump of nearly 59% in a single year, in a period when the bank's loan growth was deliberately slowed after the merger and its share price was going nowhere. When the core engine sputtered, the commission engine was redlined.

By FY26, the Financial Express reported, the picture had grown again: India's top eight banks earned more than ₹20,000 crore from insurance distribution, with nearly 80% of it - close to ₹16,000 crore - cornered by the four largest private lenders. HDFC Bank's share: ₹5,688 crore from life insurance distribution and another ₹1,239 crore from health and general insurance - about ₹6,927 crore in all. The Financial Express noted the bank is the promoter of both HDFC Life Insurance and HDFC ERGO General Insurance. The seller and the manufacturer, under one roof.

The economics of the push

Why does a bank push insurance so hard? The 1 Finance study, as reported by Moneycontrol, laid out the arithmetic. Commissions on life insurance sales run two to eleven times those on mutual fund sales. SEBI banned upfront commissions in mutual funds back in 2018; the insurance regulator never followed. The result, per the same report: distributors can earn up to 65% of the first-year premium on traditional insurance products, and the IRDAI's 2024 expense rules allow up to 80% of an insurer's expenses of management - commissions included - to be recovered from that first premium.

A mutual fund carries almost no such toll. So the salesman's queue sorts itself: the product that pays the seller most gets sold first, and the product that pays least gets mentioned last, if at all. Whether the policy suits the customer is, in this arithmetic, a secondary question. The primary question is the payout.

The customer-side wreckage shows up in the insurers' own numbers. The 1 Finance report found that 43.3% of all benefits paid out by the top ten life insurers related to policies that were surrendered, withdrawn, discontinued or lapsed - a vast population of buyers who either regretted the purchase or could not keep up the premiums. Nearly half the outcomes, in other words, are exits. Products sold are not products kept.

"The commissions on life insurance sales range from two to over eleven times those on mutual fund sales, indicating an aggressive push toward selling insurance policies, regardless of whether such policies are appropriate for the customer's needs."- Moneycontrol, summarising the 1 Finance study, June 2025

How the branch actually sells it

The mechanics are mundane, and that is what makes them powerful. A bank knows exactly when your fixed deposit matures, exactly how much sits idle in your savings account, exactly which loan you just qualified for. Every one of those events is a trigger in a sales system. The matured deposit is "redeployed" into a policy. The idle balance attracts a call about "better returns than an FD" - the pitch that, according to the mis-selling complaints regulators keep fielding, too often ends in an endowment plan with a ten-year lock-in. The fresh loan arrives with a credit-protection cover attached, and the cover arrives with a premium, and the premium arrives with a commission.

The incentive chain runs all the way down. As The Hindu reported, banking distributors earn most of their commission upfront, "often passed on as incentives to staff authorized to sell insurance." The quantum, the paper noted, can be significant, "and because it is largely front-loaded, it tilts the scales." A branch officer is not weighing your retirement needs against a term plan; he is weighing his month against his target. The Hindu's proposed cure - trail commissions paid across the policy's life - exists precisely because the current design pays the seller to close and disappear. "Sellers are motivated to push products aggressively, secure their fees, and move on. Rarely do they handhold the customer through the medium- to long-term life of the policy."

When the push overruns the customer's consent, the result has a name this dossier has already met: forced bundling. Chapter 5 documents how HDFC Bank vehicle-loan customers discovered GPS devices - and their ₹18,000 price tags - buried in their loan paperwork, a practice the RBI later penalised with a ₹10 crore fine. The draft Responsible Business Conduct norms the RBI published in February 2026 take direct aim at the same family of behaviour: bundled sales, forced consent, and the "dark patterns" in banking apps that nudge a finger toward a product it never asked for, as Mint detailed. Regulators do not write rules against hypothetical conduct. They write rules against conduct they have seen.

A decade of doubling

The channel's rise is itself a piece of reporting. The 1 Finance study, cited by Moneycontrol, found that the share of life-insurance premiums underwritten through banks doubled in a decade - from 15.6% in FY14 to 33.1% in FY24. For bank-promoted insurers the dependence is far higher. ICRA's March 2026 sector report, cited by the Financial Express, says bancassurance "remained the dominant distribution channel, with bank-sponsored insurers particularly reliant on it," and warns of the concentration risk plainly. Mint's reporting adds the sector-wide view: banks now originate about half of all insurance premiums, and up to 80% for some insurers.

Trace the regulatory arc across that same decade and it reads as a long tolerance followed by a short fuse. SEBI banned upfront mutual-fund commissions in 2018 and forced clean, direct plans into existence - the fund industry screamed, then adapted, and the ordinary investor's costs fell. Insurance was left alone. The IRDAI's 2024 expense-of-management rules, instead of capping commissions, capped total expenses - and, as the 1 Finance report notes, still allowed up to 80% of those expenses to be recovered from the first-year premium. The predictable result, documented by The Hindu: commission payouts kept rising faster than premiums, year after year, until the RBI - the banking regulator, not the insurance one - stepped into the gap with the Responsible Business Conduct framework. When one regulator has to protect customers from another regulator's industry, the word for the arrangement is not "market." It is a vacuum.

The depositor's-eye view

Put yourself in the chair. You are sixty-two, retired, and your ₹25 lakh fixed deposit has matured. The branch calls - they always call - with a "better plan, beta, guaranteed returns, tax-free." What the caller does not say: the plan locks your money for a decade; exit early and you lose a slice of it; the illustration assumes rates the fine print does not guarantee; and the person across the desk may be earning, this afternoon, a personal incentive worth more than your monthly pension, because up to 65% of your first premium is the industry's legal ceiling on commission and his bank is the country's most efficient collector of exactly that commission. You sign, because you trust the blue grid. Three years later you discover what you bought. You are now a data point in the 43.3%.

Multiply that scene by the largest retail deposit base in Indian private banking and the abstract number at the top of this chapter stops being abstract. ₹6,467 crore in a year is not a fee line. It is a hundred thousand conversations that went one way because the incentives were built, end to end, to make them go one way.

The family business

There is a second layer to the commercials, and it is the one the brochures never mention: who manufactures what the bank sells. The 1 Finance survey of ten banks found that seven earned more than half of their insurance commissions selling policies from affiliated insurers. At Kotak Mahindra Bank, 100% of life insurance commissions came from Kotak Life. HDFC Bank is the promoter of HDFC Life and HDFC ERGO. When a relationship manager steers a depositor toward an HDFC Life policy, the commission enters the bank's P&L and the premium enters the group's insurer. The group wins twice; the customer's choice architecture was designed before they walked in.

The dependence runs the other way too. The Financial Express reported that in FY26, 58% of HDFC Life's ₹14,635 crore in individual annualised premium equivalent came through the bancassurance channel - overwhelmingly its parent bank. ICRA, in a March 2026 sector report cited by FE, warned that "high reliance on banca channels creates concentration risk for the sector." The insurer feeds the bank; the bank feeds the insurer; and the customer funds both meals.

The scale of the national habit is documented in the regulator's own books. The Hindu reported, citing IRDAI's latest annual report, that total life-insurance commissions hit ₹60,800 crore in FY25, up 18% year-on-year - while premiums grew in single digits. First-year commissions rose over 20%; single-premium payouts jumped nearly 37%. Commissions growing faster than premiums is the industry's tell: the sale is being prized above the policy. The Hindu also relayed a case then circulating among executives - an elderly woman persuaded to liquidate all her fixed deposits into a single-premium policy. The agent got enriched. The customer got a lock-in.

The fee machine in the annual report

Zoom out from insurance for a moment and the pattern widens. The Financial Express noted that insurance distribution alone contributes "nearly a fifth of non-interest income for some" large private banks. Fee income - commissions, distribution, processing charges, cards - is the growth line that does not consume capital, does not create bad loans, and does not depend on the interest-rate cycle. For a bank digesting a giant merger and watching its net interest margin compress, fees are the pressure valve. The investor presentations call this "granular fee growth." The branch call sheet calls it something else.

The disclosures exist because the law forces them. HDFC Bank publishes the commission it receives from its insurance partners in public notices; HDFC ERGO files its commission schedule in its public-disclosure documents. These are not documents a customer is ever shown at the point of sale. They are documents for the curious - the ones who read annexures. The bank complies with the letter of transparency while the sales floor runs on the spirit of the opposite. That gap between disclosed and disclosed-to-you is where this chapter lives.

The regulator circles

By early 2026 the Reserve Bank of India had seen enough. On 11 February, it released draft "Responsible Business Conduct" guidelines - its term for the mis-selling problem - targeting mis-selling, bundled sales and even "dark patterns" in banking apps, as Mint reported. ICRA sizes the industry-wide bancassurance take at ₹22,000-25,000 crore a year; insurance sold through banks accounts for about 50% of sector premiums on average, and up to 80% for certain insurers. The draft norms restrict bundling, impose suitability and refund obligations, and were designed to move banks "from a sales-driven model to a need- and advice-led approach."

The teeth arrived in the final directions. The Financial Express reported that under the RBI's new framework, effective 1 January 2027, banks and NBFCs found to have mis-sold third-party products must fully compensate the customer. For an industry built on the profitable gap between what was sold and what was suitable, a full-refund rule is not a compliance tweak; it is a threat to the business model.

The insurance regulator has been moving too, if slower. The Hindu reported that IRDAI is weighing fixing commissions itself, capping them, or forcing a shift to a "trail" model - commissions paid over the life of the policy rather than upfront, so that the seller's incentive survives past the signature. And the NDTV Profit reported that the proposed Insurance Bill 2025 would empower IRDAI to cap commissions outright - a prospect that put HDFC Bank, ICICI Bank and Axis Bank stocks "in focus," because of what commissions now mean to their profits. NDTV Profit's breakdown is the sharpest measure of dependence: insurance income was about 7% of HDFC Bank's pre-tax profit, 9% of Axis Bank's - and a precarious 35.1% at IndusInd Bank and 47.2% at Equitas SFB.

Not everyone in the system believes the fix will bite. Business Standard reported in 2025 that IRDAI was unlikely to act directly against the bancassurance model despite the mis-selling fears - the channel is simply too large to throttle without choking insurance penetration itself.

The one-year clock

The Hindu reported that the RBI's draft norms carried an implementation date of 1 July 2026; the final directions, per the Financial Express, take effect on 1 January 2027 with the full-compensation rule. Between those two dates sits the entire negotiation of Indian retail banking's future. Bankers, Mint reported, are "waiting for final guidelines," and the industry's public line is that less than 1% of bank-sold policies draw complaints. But complaint counts measure only the customers who fought. The 43.3% surrender-and-lapse figure in the 1 Finance study measures the ones who quietly paid and quietly exited. Serious analysis starts with the second number, not the first.

Watch, too, what a commission cap would do to the math of the whole sector. NDTV Profit's reporting on the Insurance Bill 2025 put it in stock-market terms: HDFC Bank, ICICI Bank and Axis Bank were flagged as the names most exposed to a cap, because they are the largest absolute earners. When a rule about how insurance is sold moves the share price of a bank, the sale was never incidental to the bank. It was load-bearing.

What the fine print already confessed

Here is the curious part: none of this required a leak. HDFC Bank publishes the commission it earns on insurance sales in its own notices and annual report; HDFC ERGO publishes its commission schedule in a public-disclosure PDF. The regulator publishes the industry totals. The ₹6,000-crore engine was always in plain sight - it was just never assembled into one number and read aloud. That is the recurring trick of this dossier: the documents were public, the tone was reverent, and the total stayed unspoken.

Assemble it and a serious question emerges. A bank earns its margin on the spread between what it pays depositors and what it charges borrowers - that is banking. But ₹6,927 crore a year is earned by converting depositors into policyholders, at commissions of up to 65% of first-year premium, on products that 43% of buyers exit early, sold overwhelmingly from the bank's own family of insurers. Is that banking - or is it a toll booth built across the trust that banking created?

The regulators, at last, are asking versions of the same question. The RBI's refund rule lands in January 2027. The Insurance Bill waits in Parliament. IRDAI's commission overhaul is on the table. The machine has one year to learn new manners - and ₹6,000-odd crore of annual incentive to learn them slowly.