Why banking stocks are falling today: HDFC Bank, ICICI Bank, Axis Bank under pressure

Banking stocks were trading lower during Friday’s session as investors reacted to the Reserve Bank of India’s proposal on stricter rules for selling insurance products with loans.

The Nifty Bank index declined 1.35 per cent to 58,257.50 as of around 12:33 PM. Among individual stocks, State Bank of India shares fell 1.50 per cent to Rs 1,152. HDFC Bank declined 1.91 per cent to Rs 860.95, while ICICI Bank dropped 2.40 per cent to Rs 1,325. Shares of Axis Bank were also under pressure, slipping 1.65 per cent to Rs 1,326.90.

What has the RBI changed?

Add Zee Business as a Preferred Source

If you’ve taken a home loan, personal loan, or even a car loan, you might have noticed that banks often try to sell an insurance policy alongside it. That’s called bancassurance.

The RBI wants to change this. Under the new rules, banks can’t automatically attach an insurance policy to your loan. Customers will have to explicitly say yes if they want it. Think of it like ordering food online: earlier, the app would automatically add a drink to your order unless you removed it. After the change, it won’t appear unless you choose it yourself.

Investors aren’t thrilled because this could slow down a profitable part of the insurance business and reduce fee income for banks.

Credit protection insurance is the big one

The insurance policy most at risk is credit protection insurance. It’s the kind of policy that pays off your loan if something happens to you, like death or disability. Banks sell it along with home loans, personal loans, and other retail credit products.

Even thou gh these policies make up only a small portion of overall insurance sales, they are high-margin products. That means they contribute a lot more to profits than their size suggests. Insurers measure expected future profits from new policies using a metric called Value of New Business (VNB). Credit protection policies are small in sales volume but punch above their weight in profit contribution. So if fewer people buy them, profits could slow even if total premiums don’t fall.

Who is most exposed?

Some insurance companies rely heavily on loan-linked policies:

HDFC Life Insurance

ICICI Prudential Life Insurance

Others are less exposed:

SBI Life Insurance

Max Life Insurance

Banks could feel the pinch too. They earn commissions when they sell insurance, which is part of their non-interest income. Big banks like HDFC Bank, ICICI Bank, and Axis Bank are diversified, so they’ll manage. Smaller banks could feel it more.

Why the market reacted

Bancassurance has been a major growth engine for insurers, but regulators now want more transparency and clear customer consent. Investors reacted because profit margins, rather than total revenue, could take a hit. That’s why we saw selling pressure in banking and life insurance stocks today.

In simple terms: banks can’t push insurance with loans anymore. Customers must actively opt in. That’s good for transparency, but it could slow down sales of high-margin insurance products and affect profits for some insurers and banks in the near term.