While systems for Banking ethics and code for customer support are in place, the Deputy Governor, RBI highlighted the growing cases of mis-selling in India. Here’s an extract of the speech of Shri S. S. Mundra, Deputy Governor, RBI.
There has been increasingly large number of cases of mis-selling of third party products, particularly insurance products to the customers by the banks by bundling them with loans.
In a recent incident, a senior citizen, a retired General Manager of a private sector company who had invested his retirement benefits in Fixed Deposits with one Private Sector bank was convinced by the bank’s representative to invest Rs. 2 lakh in an investment scheme assuring his funds would earn a minimum 11% interest and there would be no deduction of income tax upon withdrawal after three years.
Another representative from the same bank visited the depositor after a period of one year from the initial investment and convinced him to prematurely close three FDs aggregating Rs. 7 lakh and invest the proceeds in the same scheme. After completion of three years the customer found that he had earned only about 3.5% returns. The representative is no longer in the service of the bank and the customer is in a hapless position.
This is a clear case of selling of a product which was not suitable to the needs of the customer. A retired person needs a secure and steady return on investments and any financial product, where returns are not assured, is not suitable for such customer.
Another unnerving episode of mis-selling of insurance products by the DSAs got reported in the media recently. The agent promised loans from an NFBC at a very cheap rate provided the customer bought a particular insurance policy. Detailed inquiry later revealed that the named NBFC no more existed under that name, he was not an employee of any NBFC & this was just a ploy to mislead the customer in buying a policy. Such proposals were then tendered to the bank from DSA and were accepted by them without any verification.
Needless to say it amounts to a fraudulent transaction. Bank would surely face an aggrieved customer later on. Such cases of mis-selling are rampant and as sellers of third party products using their own staff/ DSAs, the banks are equally vulnerable. Often, higher sales targets coupled with front ended high commissions are the main motives for such mis-sales. There is no real oversight on unethical selling of third party products.
Let me give another recent example of failure of a bank to render proper customer service. A customer was sanctioned a home loan and he had agreed to take a life insurance as a cover for the loan and signed relevant documents. However, the loan sanctioned and disbursed was for a lower quantum than original applied. On the unfortunate death of the borrower, the bank contested the claim stating that at the time of availing lower quantum of loan the borrower had not submitted an insurance proposal form and hence, the bank had not taken insurance. Our analysis revealed that the loan installments paid by the customer included the insurance premium as well but the bank had failed to complete the process of insurance. The appellate authority adjudicated that the bank was at fault and it didn’t have appropriate procedure to secure insurance after the sanction of the loan and hence, an award was given in favour of the customer.