Whalesbook
Lockers Used as Bait for High-Margin Sales
Banks are increasingly using their limited supply of safe deposit lockers, which are low-margin and costly to maintain, as a way to sell more profitable financial products. In busy urban areas where demand far outstrips supply, lockers are becoming bargaining chips. Banks leverage this scarcity to push customers toward insurance policies, Unit Linked Investment Plans (ULIPs), and other investments that earn significant commissions for staff and boost the bank's fee income. The problem isn't offering these products, but forcing customers to buy them just to get a locker, which goes against regulatory intent and customer-focused banking.
Why Lockers Are in Such High Demand
Demand for bank lockers has surged due to rising affluence and a preference for holding physical assets like gold. However, supply hasn't kept up. With only about 6 million lockers available against a projected demand of 60 million by 2030, banks have significant leverage. Customers looking for a locker often face conditions beyond the standard security deposit. RBI guidelines state this deposit should only cover up to three years' rent and potential break-open charges. Instead, customers report being pressured to buy insurance policies or other investments, which the RBI explicitly forbids. This tactic exploits a customer's urgent need and long waiting lists, making it seem easier to comply with the extra demands.
Banks Push Fee Income Amid Profit Pressure
This trend shows how Indian banks are increasingly depending on fee-based income to offset pressure on their core lending profits (net interest margins or NIMs). Fee income, from commissions, brokerage, and selling third-party products, is a major part of total revenue. Private banks earn a larger share from these sources than public sector banks. For example, Kotak Mahindra Bank reported a 25% increase in fee income from FY2022 to FY2023, the highest among top banks. While diversifying revenue is good, it strongly encourages staff to push high-commission products through aggressive sales tactics. Competitors like HDFC Bank, ICICI Bank, and Axis Bank also offer lockers, with prices varying by size and location. But the core problem – using locker scarcity to sell products – seems widespread. This is partly because lockers are unprofitable and costly to maintain, leading banks to focus on more profitable financial services. The Reserve Bank of India (RBI) is tackling mis-selling. Draft rules issued in February 2026 aim to stop these practices, requiring refunds and compensation for proven cases, and banning bundled sales and third-party incentives. These rules are set to take effect from July 1, 2026.
Governance and Trust Issues Surface
Forcing customers to buy products for locker access creates a risk of mis-selling, where sales targets override actual customer needs. This erodes trust and causes a conflict of interest because staff are compensated more for sales than for service. Additionally, Kotak Mahindra Bank recently faced scrutiny over a reported ₹150-160 crore discrepancy in fixed deposits connected to the Panchkula Municipal Corporation. This led to an FIR and ongoing investigations. While the bank maintains its processes were sound, such issues involving public funds raise questions about governance, trust, and record-keeping integrity. Combined with the widespread trend of aggressive cross-selling, these issues suggest a broader risk where bank practices at the branch level can undermine regulatory goals. The lack of clarity in locker allocation and the pressure to buy unwanted products reveal a significant gap between official policy and actual implementation, creating opportunities for customer exploitation.
What Happens Next: Tighter Rules and Customer Power
The RBI's new rules on responsible business conduct are about to take effect, meaning banks will face closer scrutiny on product sales. These rules emphasize customer consent, product suitability, and ban bundled sales, which should help reduce mis-selling. However, the ongoing imbalance between locker demand and supply, along with banks' profit pressures, means the incentive to use scarcity for sales might persist. Customers are gaining more power through clearer regulations and more channels to report complaints, from bank managers to the RBI Ombudsman. The success of these new rules depends on strong enforcement and ongoing focus on protecting customers, ensuring basic banking services aren't just used for aggressive product sales.