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  • MF News Stop mis-selling or face penalties: RBI Deputy Governor

    Stop mis-selling or face penalties: RBI Deputy Governor

    RBI Deputy Governor S. S. Mundra suggested that banks put in place a system of periodic inspection of the sale of third party products by involving their internal inspection teams and plug the loopholes.
    Ravi Samalad May 27, 2016

    At a recent event in Mumbai, RBI Deputy Governor S. S. Mundra said that the banking regulator has come across many instances of mis-selling of third party products by banks, particularly insurance products by bundling them with loans.

    The RBI Deputy Governor cited three cases of mis-selling by banks:

    1. “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.”
    2. “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.”
    3. “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 favor of the customer.”

    Mundra said that RBI studies have also found that the cases of mis-selling are rampant even in semi-urban and rural areas. “The Right to Suitability enshrined in our Charter of Customer Rights has been totally ignored or rather knowingly violated for the reasons best known to the banks,” observed Mundra.

    Mundra cautioned that RBI can take strict actions including imposition of heavy penalties, if the banking industry continues mis-selling of third party products. He suggested that banks put in place a system of periodic inspection of the sale of third party products by involving their internal inspection teams and plug the loopholes. 

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    7 Comments
    r.p. sharma · 8 years ago `
    Thanks a lot to do strict action against not only banks but need to be punish each and every person who sells wrong products with wrong intention , depositors benefits and their satisfaction with due respect is most important should be every where. Proper financial planning should be done at the basis of age, responsibilities, thirst, future needs,future changes etc............ www.careinvestmentsonline.com
    Sumit · 8 years ago `
    Is the RBI Deputy Governor so naive that he thinks that mis-selling is not in agreement with the top bosses of the bank?? Only way to prevent mis-selling in banks is by segregating banking and investments to different divisions/branch offices with an arms length distance.
    nitin patel · 8 years ago `
    just apply for a bank locker. you will experience the manner in which insurance plans are thrust on you
    amit jain · 8 years ago `
    it is good step but i have one concern with irda if u can raised the question to it why irda had not kept same rules for every life company agent in l i c of india they never cut service tax of agent and pay the commission but private company why they cut service tax of agent it is not good irda should mandate to each life insurance company to follow same sturture of commission payment
    Arun · 8 years ago `
    Banks (especially pvt sector) should be banned from selling insurance cum investment products. Banks should be banned from forcing life investment cum insurance policies with any kind of loan or at the time of account opening.
    Last updated 8 years ago
    MMB · 8 years ago `
    I have come across two cases of mis-selling/forceful selling.A Private bank has recently recruited new staff team .One of my friend came to me and told that his daughter has been recruted by the said bank and she has been given target of selling sip of the parent AMC.so he asked one sip from my family to complete his daughter's target.Another case is from public sector bank.A retiree has some FD's in this bank.Whenever he visits the bank,the branch manager calls him in his cabin and tries to convince him for investing in parent AMC's BALANCED scheme alongwith swp and assures him attractive returns.I urge here that the products of an AMC who has banking arm also should be treated as third party product for the bank.For e.g. Axis mf products should be treated as third party product for axis bank and sbi mf products for sbi bank branches. SEBI imposes many ideal regulations on IFA's.What are they going to do to curb such mis selling.Banks should be banned from selling such products thru their regular branch.also they should not use their customer data for canvassing the products.If they are allowed to use the data ,then IFA'S SHOULD also be provided the data whenever applied for the same may be with some nominal fees.This will ensure level play field for all intermediaries and broking channels.Many of our clients are succumbing to such bank branch pressures and switching our business to banking broking channel.IFA's should appeal to RBI and SEBI to stop such mis?selling.
    ASHOK SACHDEVA · 8 years ago `
    Kudos to Deputy Governor, RBI for at least taking a note that rampant mis-selling of third party products like Life Insurance and Mutual Funds is happening at Banks level. I treat it as breach of trust created by sales team of Banks because actually they are the key persons involved between the Bank and the aggrieved customer. It is also true that they are helpless for being pressurized and forced to sell focused products to achieve the targets fixed by Bank management. So this evil can be construed as failure of prevalent system and procedures. I feel that the suggestion of periodic inspection by internal inspection teams of Banks will be of little success only. This inspection & monitoring by third party teams and not internal teams will be more relevant and effective. The best way to weed out such menace will be to constitute a committee to probe such prevalent mis-selling system and draft fresh guidelines & procedure for selling third party products by Banks.
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