Personal Finance Exclusive
Beware of banks selling non-banking products

Top management of banks are pressuring their employees to sell insurance, stocks and mutual funds by hook or by crook. No wonder, departing deputy governor of RBI has suggested banning banks from selling third-party products

From the point of view of retail savers, banks are a place where you park your money and get facilities to withdraw, issue cheques and also borrow. But what happens when a bank employee “advises” you to move in and out of stocks, buy a particular insurance product or buy or sell mutual funds? The result is rampant mis-selling, losses and large number of baffled savers.


Here is an email we just got from an Axis Bank employee. “As you are well aware of the practices followed by banks to sell or mis-sell investments products I need not elaborate them. But believe me the pressure, which is applied by the bank’s management throughout the year for selling these products can only be equated to madness. The management puts so much pressure as if without selling these investment products, the bank will not be able to generate any revenues. Moreover, the high percentage of revenues shared by insurance companies during the first year of sales is a major attraction for banks. Almost all banks organise contests within its staff for maximum selling of insurance products, and the rewards include all-paid foreign trips. All expenses, of course, are borne by the insurance companies. In spite of Cobrapost operation, banks have again started these old practices,” said the employee, who does not want to be named.


This mis-selling is not limited only to selling insurance or mutual funds. Some of the banks, which offer broking services, are found many times to misguide its own customers. Take for example, this investor who has a trading account with Axis Direct. He received a call from an Axis Direct executive sometime in February, asking him to sell his Larsen and Toubro (L&T) shares at Rs981. Totally wrong call, leading to huge loss of profit for this investor, as L&T made hit 52-week high at Rs1,387 on 23 April 2014.


Explaining how this happened, the investor told Moneylife, “On 14th February 2014, I received a call from an Axis Direct executive who said, ‘it is a good time to book profits with L&T as there is no positive outlook on the stock and it has max'ed up and the stock cannot go more than the said level and so book profits immediately.’ I sold 120 L&T shares at the price of Rs981. After this point I kept a watch on the stock and I'd have accepted some Rs20 to Rs50 rise/fall in price, I would not have complained. But here the problem is different. The stock kept on rising and its above Rs1,350 which actually converts to a loss of profit of more than Rs44,000.” When he complained, Axis Direct responded by saying, “the stock decision is the sole discretion of the investor!”


The investor said, “Now I am pissed off and have decided to never take the calls from Axis Direct and might abuse them if they come up with advice. Also I believe that this call was made by someone who was low on his monthly targets and I became the victim.”

There are two hard lessons from these examples: 1. Never trust your “banker” to sell you any non-banking product or a third-party product in your interest. 2. Never take buying and selling advice from an employee who has no stake in your profits and losses. Moneylife tells investor not to trade on “hot stock tips” and make investment decision after doing indepth research and analysis. Moneylife Foundation organised free seminar; “Learn to be Safe & Smart with Your Money" on the basics you need to know for your own financial life. Newly launched Moneylife Smart Savers Network provides a complete guide on personal finance.


Investors cannot outsource the job of assessing the risks associated with their investments, selection of right stocks, right time to enter and exit. The Axis Bank bank employee who is pressured to hardsell third party products says, “It is important to restrict banks from selling insurance products (Life & General). Unfortunately the Reserve Bank of India (RBI) has not yet done anything on this issue. These days bank jobs are not to develop one's career as a banker but to become a salesman without paying much attention to the seriousness of banking business.”


In April 2013, Moneylife Foundation sent a memorandum to RBI governor on behalf of more than 21,500 members (at that time) to free the system of mis-selling of financial products by bankers, misusing the savers’ trust.

Moneylife has for long been highlighting the mis-selling of these services with specific examples. This was among the many issues taken up by Moneylife Foundation with RBI deputy governor, Dr KC Chakrabarty, at an Open House meeting in June 2013. In a cover story on such issues, (Read: Banks Vs Depositors ) Moneylife pointed out how selling of insurance, mutual funds and equity advisory services by banks have affected customers, who do not know which regulator will redress their grievance.

RBI ignores complaints about third-party products (some are not even regulated), while Securities and Exchange Board of India (SEBI) and Insurance Regulatory Development Authority (IRDA), both already poor at grievance redress, are even more reluctant to address complaints about mis-selling by banks.

Moneylife has highlighted several stories on mis-selling. A year ago, we wrote about how HSBC Bank promised Suchitra Krishnamoorthi, a well-known singer and actor, extravagant assured return of 24% from mutual funds as well as insurance, but instead continuously churned her portfolio. (Read: HSBC loots Suchitra Krishnamoorthi after big promises of 24% returns). The end result after five years was a direct loss of Rs83 lakh from investment, Rs28 lakh in HSBC commissions to HSBC, Rs18 lakh from decline in value of two insurance policies, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the income-tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the Bank.

On 14 March 2014, the Hongkong & Shanghai Banking Corporation (HSBC) suddenly called actor Suchitra Krishnamoorthi to discuss a settlement to close her long-pending allegation about gross mis-selling that had caused her a loss of over Rs1.85 crore.
(The Real Story of how HSBC Was Made To Pay)

In a similar case, another high net worth individual (HNI) based in London, found out abnormal churning of mutual funds in his portfolio that was managed by HSBC bank. Both are HNIs who were made to sign a power of attorney (POA) in favour of HSBC to handle their investments smartly.


Will RBI intervene in this matter or will it be a silent spectator? Until it does, keep your money in the banks but know that ordinary bankers turn into 'banksters' when they sell you non-banking products like insurance, stocks and mutual funds.


Nowadays, bankers, especially those in private banks have forgotten basic banking and generation of revenues out of banking business, as far as retail savers are concerned. Instead that they have become aggressive salesmen, selling insurance and mutual fund agents selling, often mis-selling these products to their customers or even to non-customers. This is resulting into a total shift of focus from generating revenue from the core banking business to this agency fee income.




3 years ago

As per Core Banking Solution (CBS), Customers are enables to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account.

My account is at BOB – Amreli and presently I am living in surat so that I had deposited 1 cheque of transfer (BOB to BOB) in Bank of Baroda – Nanpura (Surat) branch.

It is informed to me that transfer cheques can be deposited either at issuer’s branch or in receiver’s branch. And bank staff denied to accept this cheque so that I had meet bank manager for this but he also answering same. I ask for reason why it is not accepted then he tells that this is as per bank’s rules. I ask to manager to give this statement in writing that transfer cheques can not be accepted for this reason and also ask to see me rules of bank for this but he denied to give and tells that “do whatever you can do, i will not accept this cheque”.

There is no meaning of CBS in this type of banking facilities.

Due to this type of wrong banking many customers are suffering a lot. This is done with me so many times so i had explore this issue at RBI level also.

I think this is due to there is no benefit to that branch for accepting transfer cheques of other branches.


3 years ago





3 years ago






PRIVATE BANK OFFICERS compared to their packages

bank officers of private banks are BUSINESSMEN in bank premises

Doraiswami Sukumar

3 years ago

I completely agree. These banks ( private banks especially) appoint relationship managers (RM) only to sell non banking products to customers. These RMs have no experience of selling these products and invariably land customers in the dock. Moreover, these RMs are rolling stones and disappear from your life sooner than they appear!

Nikhil Gadodia

3 years ago

I agree. The way banks are selling other products is really creating problems.
I went to AXIS Bank & I was asked to take a non banking product to get a locker in the bank. Adding to it is the FD as well as bank charges.
SBI also asks for a wholesome amount of FD to get lockers with bank charges.
Wonder what will happen when there are new banks opening up in the coming years & where this competition take the customers..


3 years ago

why the activities of the BANKS cannot be restricted to banking only?other activities can be looked after by the professionals.let the RBI look in to.

sathishkumar dachinamurthy

3 years ago

Yes i totally agree with him, i too worked for Axis bank, they will ask us to sign in a white paper in the morning if we are not meeting our targets in the evening they will write our resignation letter, i had never seen in any field like this sought of torture, that too for a operation manager like me, who has to take care of operations and do these mis sells, money life please do something to save our investors, all insurance are sold by saying it is an FD.

Gautam Haldipur

3 years ago

Having gone through several comments posted by my esteemed friends, I must say almost all of them have hit the Bulls Eye!Please recall my interview with Wealthforum on 12/09/2013 in the Advisor Speak column wherein I have clearly mentioned this in the column "Regulation in Insurance" & "What needs to be done" columns.We are 7 months away from when I wrote this hard hitting article, but yet to see the light of the day!.Large brokerages & Banks as has been repeatedely said continue to blatantly mis-sell Insurance or Mutual Fund products. I have personally cross checked the knowledge & the ability of banking staff to sell these products. Honestly, except in one case ( a person who was street smart & had a clearly declared intention of doing these businesses post retirement from the Bank, evidently a vested interest, was reasonably good), the rest were "less said the better" cases.Just see how the system works:-
1. You go to your banker for your regular banking work.(Please note he is one amongst whom you trust immensely to take care of your money).
2.During the course of your talk, you are introduced to Life / General Insurance products or Mutual Fund products.
3.Your mind works towards considering it for several reasons, few of which are:- a.You probably have a loan & feel obliged to your banker & would like to return the "favour".b.The immense trust you have in your banker.c.The misplaced feeling that since the Bank is associated with the product, it is fail safe (another serious misconception!).In the bargain the poor client has thrown all caution to winds.His decision is more emotional than logical.Please note, in this respect bankers are no holy cows! They would have everything in writing / print signed by you at every concievable space available on the paper, but when it comes to vice-versa, they will convieniently slip off & say Oh! its o.k. That is how they are able to escape the long arm of the law.(Read Disclaimers)Accountability & secondary service is simply non-existent in this segment without which it is doomed to failure & disenchantment.PLEASE READ THE FINE PRINT OF EVERY BANKING DOCUMENT BEFORE YOU SIGN )Frequent change of staff leaves the customer high & dry in the event of service issues arising.Very rarely select staff are dedicated to this task.I am sure I can write an entire thesis on this subject but in the present context it would make no sense. I will however humbly urge SEBI & IRDA to consider implementing the following suggestions:-
1. Completely ban Banks from cross selling these products. Why? because these guys simply do not have the time to go even to the loo! where would they find the time for an in depth analysis of products, save a few probably.
2.Banking is a core business by itself which is becoming more & more complex by the day. Please let them concentrate their energies on that which might probably lead to lesser NPA's in the industry.
3. Impart regular, compulsory & rigorous training on products to be sold & periodical refreshers which most likely will reduce mis-selling to a very large extent.
4. Let well qualified comprehensive financial planners take this roll where accountability standards already set by SEBI are not just stiff but sometimes draconian!They will obviously do a better job. Why? Simply because it is their core work!
Last but not the least, there is a lot more of work to be done in this field & let's sincerely hope things are put in place as soon as possible so that the common investor's life turns from sheer misery to bubbling joy!


Nagesh Kini

In Reply to Gautam Haldipur 3 years ago

I maintain that selling third party products is no business of commercial banking, they're simply not geared for post-sale services. Banks should confine themselves to core banking of deposits and advances. Let them mobilize people to mop up deposits and recover overdues.

Gautam Haldipur

In Reply to Nagesh Kini 3 years ago

Dear Mr. Nagesh Kini,
You are on the dot.Banks should confine themselves to banking & not venture into third party products in which their expertise is suspect & most of all post sales service being non-existent. It can really hit the banks hard at the trust level.

Suiketu Shah

3 years ago

One of the biggest frauds in equity's is HDFC securities VKsharma who behaves as if he is more important that the prime minister of India.If you trace his calls over the last 6 months you wl find he focus only on some 10-15 stocks and his calls are quite pathetic to say the least.

Pl stay far far away from HDFC Securities.I have BHel shares at a murderous price of rs 412 /share since 3.5 yrs bought via official consultation by hdfc.Thats speaks for itself.Bhel is now Rs 190/-

Veeresh Malik

3 years ago

The other thing I've noticed is that 3rd party re-sellers/agents are not sitting inside ATMs in AirCon comfort with walls plastered with all sorts of ads exhorting you to buy this and that. This needs to be stopped by RBI too and in addition all ATMs must be linked to an RBI monitored feedback cell operated by customer or anybody using mobile phone / SMS / ATM keypad / drop-box / piece of paper / postcard etcetc/.

Sam Koshy

3 years ago

Customers will find loss of their capital because they believe banks & bank employees. It is the duty of the bank top management & strategists to plan every year's revenue targets, no matter about the products they sell.

Target pressure on employees will be mounting & they are forced to mis-sell the third party products without knowing the suitability of the product to a particular customer. Adding to that employees keep on changing or they will be transferred frequently.

No bank staff can be a competent financial consultant because it needs time and expertise to understand the financial needs of clients, it needs to re-structure , continuous updations & servicing.

When a bank staff sell a product to a customer his role is over. He/She don't even check with the documents whether the information is correct or not. The staff is running to another customer because he/she will be always short of his revenue targets .

RBI, SEBI & IRDA should bring integrity by barring banks from all types of dealing with third party products like Insurance, Mutual Funds, Equity Trading etc. Banks should do banking only. This is needed to retain trust of common. customers & investors.

Nagesh Kini

3 years ago

Most seniors at the banks certainly don't like to move beyond core banking - collecting of deposits and making of advanced.
touting third party products is not the bankers' cup of tea. the new baccha's blindly mouth catch marketing phrases like 'long term perspective' etc. not really knowing what they mean.
they are a big zero when it comes to post-sale services for life and non-life insurance claims beyond 'referred to back office.'
best put all of them on a crash recovery process to bring down npas - present and potential.
it'll improve bottom lines!


3 years ago

The most important aspect of financial advisory is to understand a client’s needs and psychology before recommending financial products for him / her. This requires spending a lot of time with investors. Is it possible for bankers to spend that kind of time with clients?

Bankers may have required qualifications but do they have specialized experience? Are they honing their skills on a continuous basis as a professional financial advisor does?

Investors will be better served by someone who is competent and has a long term financial advisory relationship with them than by someone who keeps changing his / her role every few months as a banker does these days.

The greed for free lunches and the refusal to accept the importance of quality financial advice in one’s life is not helping the matters either.

Aditya Karnik

3 years ago

Banks selling third party products has really become contentious issue. and the worst part is more often than not, clients have utmost faith posed on their banker and they never realise how he/she is being taken for a ride. To add to the misery, one often sees his/her RM being changed periodically. Bankers must understand their basic function: Accepting deposits and lending funds. The sooner they understand this the better.


3 years ago

Dear Friends,
Even banks like Punjab National Bank are forcing their staff to sell insurance policies. The staff is not having much knowledge of these plans and since top bosses are getting gifts so they are selling it blindly.
Very soon customers of nationalized banks will face the music.

MCX paid Rs709 crore to FTIL, group companies without documents

FTIL and NHBC are the two key related-parties to which monies have been paid by MCX for the exchange technology solutions and warehousing, respectively, says a report from PwC

Auditing firm PricewaterhouseCoopers (PwC), in a report had said Multi Commodity Exchange of India Ltd (MCX) entered into agreements with related trading parties and paid around Rs709 crore to its erstwhile promoter, Financial Technologies India Ltd ( FTIL) and other group companies without following a proper documentation process.


Following the Rs5,600 crore payment crisis in National Spot Exchange Ltd (NSEL), last December, commodity market regulator Forward Markets Commission had appointed PwC for auditing books of MCX. PwC was asked to examine if NSEL subsidiary Indian Bullion Markets Association (IBMA) and another FTIL subsidiary, National Bulk Handling Corporation (NBHC), traded on MCX.


PwC, in the report, which was released partially by MCX, alleged other inconsistencies and gaps in the way the commodity exchange processed related-party transactions and expressed doubts whether these agreements were conducted on an arm’s length basis.


FTIL, which set up MCX in 2003 but no longer controls the Exchange even while holding a 26% stake, rejected the PwC report. It said it will take legal action against the bourse and PwC for painting a wrong picture in the report.


The PwC report said: “FTIL and NHBC are the two key related-parties to which monies have been paid by MCX for the exchange technology solutions and warehousing, respectively. MCX also entered into related-party transactions with other FT group companies for various ancillary services.”


The PwC audit said that “there are various gaps and inconsistencies noted in the way MCX processed related-party transactions.” The commercial terms and conditions agreed by MCX with related parties were not substantiated by any underlying market benchmarking or competitive bidding process, the report said.


“Additionally, there was limited or no supporting documentation available to evidence the existence, adequacy and robustness of price discovery mechanism which may have been adopted by MCX. Therefore, it is not possible to conclude whether various related party agreements and transactions were indeed conducted on an arm’s-length basis,” the report said.


Officials of FTIL took active part in the affairs of the MCX, including trading, the special audit report has said.


“In various instances, key management personnel of MCX such as ex-CFO, Head-Information Technology, ex-Chief Compliance Officer stated that the decisions were directly taken and instructions received from the ‘Chairman’s office (FTIL)’ or the ‘MD & CEO office’,” said the audit, prepared by PwC.


The audit report, forwarded to stock exchanges by MCX, also found 676 additional entries or individuals who were directly or indirectly related to the MCX or FTIL Group, FTIL key management personnel or their immediate family members by being common directors or shareholders.


In particular, select entities or individuals were allowed to indulge in illegal wash trades, which allows a member to take a position without any intent to execute the transactions.


According to the report, it appears that MCX surveillance activity may not have been commensurate with the steep pace of growth of the exchanges over the year. It also said that there was no formal mechanism to share information on related parties between the membership department and the secretarial department. Therefore, abnormal trades of identified parties were not scrutinised thoroughly, it said.


“This review identified 15,131 instances of trades aggregating to approximately Rs1,856.56 crore where the same party placed buy and sell orders within 60 seconds of each other resulting in no change in the positions. Additionally, in 1565 instances aggregating to approximately Rs1181.72 crore, the buyers and seller were part of the same group of companies who placed orders within five seconds of each other resulting in no change of position within the group,” it said.


The report also mentioned that two members who were debarred by SEBI in July 2006 continued to trade on MCX between September 2006 and December 2011 though the FMC issued a circular mandating that members debarred by other exchanges should not be allowed to trade on commodity exchanges. Name of such member has been removed from the report placed in the public domain but it says that one of these two members was “a member with the highest turnover on MCX in the year 2004.”


The audit agency said that MCX emerged as a significant customer for FTIL by driving about 25% of latter’s revenue. MCX paid approximately Rs649 crore to FTIL on various agreements and transactions. “In spite of this, it does not seem that MCX was able to enjoy adequate bargaining power against FTIL at the time of negotiating the technology support agreements,” the report said adding that contractual terms and conditions forming part of agreements between FTIL and MCX appear to favour the former.


“Under the existing contractual terms and conditions, MCX appears to be contractually bound to FTIL for an unprecedented long tenure ranging between 22 and 50 years with a provision of automatic renewal for up to two similar terms. Further, the termination clause in certain contracts grants termination rights only to FTIL whereas the contracts were silent about MCX’s right of termination,” the report said.


An executive summary of the audit report was sent to the stock exchanges by the MCX. The report was prepared on the orders of commodities market regulator Forward Market Commission. The report is yet to be independently verified by the company.


Jignesh Shah-promoted FTIL is the promoter of MCX and crisis-ridden NSEL.


“At this stage, the company neither agrees nor disagrees with the contents thereof and does not have any opinion on the same and takes no responsibility of the contents or makes no inferences thereon as the same are yet to be independently verified by the company,” MCX said while forwarding the report.


In 1,565 instances aggregating Rs1,182 crore, the buyers and seller were part of the same group of companies who placed orders within five seconds of each other resulting in no change of position within the group.


Kotak Mahindra Bank FY14 net profit up 10% to Rs1,503 crore

For FY14, Kotak Mahindra Bank reported higher net profit of Rs1,503 crore on 16% growth in its net interest income

Kotak Mahindra Bank, India’s fourth largest private sector lender,
reported a 10% increase in its full year net profit mainly on rise in its net interest income (NII) and total revenues.

For the 12 months to end-March, Kotak Mahindra Bank said its stand alone net profit increased 10% to Rs1,503 crore from Rs1,361 crore, while its total revenues, including interest income, grew 10.47% to Rs10,167 crore from Rs9,203 crore, a year ago period.

During FY14, the private sector lender said, its NII increased 16% to Rs3,720 crore from Rs3,206 crore of FY13. Its net interest margin (NIM) stood at 4.90% from 4.65%, a year ago period.

Kotak Mahindra Bank has made 65% more provisions during FY14 to Rs304.70 crore from Rs184.55 crore a year ago period. As on 31 March 2014, its provision coverage ratio on non-performing assets (NPAs) stood at 55.5%.

As on 31 March 2014, total advances of Kotak Mahindra Bank increased 9% to Rs53,028 crore compared with Rs48,469 crore, a year ago period. Its total deposits, during the year, increased 16% to Rs59,072 crore and saving account deposits grew 39% to Rs10,087 crore compared with same period a year ago, while its current and saving accounts (CASA) stood at Rs18,828 crore from Rs14,918 crore.

Kotak Mahindra Bank's capital adequacy ratio (CAR) stood at 18.83%, gross non performing assets ratio (GNPAs) stood at 1.98% (Rs1,059.44 crore). Its net non-performing assets stood at 1.08% (Rs573.56) as on 31st March 2014.

For the quarter to end-March, the lender said its stand alone net profit fell 6.66% to Rs407.18 crore from Rs436.21 crore, while its total revenues, including interest income, declined marginally (0.75%) to Rs2,552.96 crore from Rs2,572.23 crore, same period last year.

As on 31 March 2014, the Kotak Mahindra Bank's total number of branches and ATM network stood at 605 and 1,103 respectively.

Kotak Mahindra Bank declared a dividend of Re0.80 per share.

Kotak Mahindra Bank shares closed Wednesday marginally down at Rs803.20 on the BSE, while the 30-share Sensex ended the day flat at 22,417.

For more stock results, check out this page


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