Consumer Issues
Conned Indian Financial Consumer

As these examples from Moneylife Foundation’s Helpline show, the consumer has little chance of being treated fairly by companies, regulators and intermediaries

Mr Mallick from Sambalpur in Orissa runs an NGO. He has 17 insurance policies, sold to him by eight banks through their Bankassurance partners, with large premiums. He claims to have borrowed funds from various banks for a project (which we gather involves lending to the rural poor like a banking correspondent) and was persuaded to buy insurance policies. Since Mr Mallick’s English is poor, it is not clear if there was coercion; he alleges ‘gross mis-selling’.

In most cases, he was not able to pay anything after the first premium. The banks involved in the mis-selling include Union Bank of India (sold him SUD Life Insurance), Punjab National Bank (sold him Metlife India Insurance), HDFC Bank (sold him three policies of HDFC Standard Life), Axis Bank (Bajaj Alliance Life Insurance), Oriental Bank of Commerce (Canara HSBC Life Insurance), Karnataka Bank (two policies of Aviva Life Insurance), IDBI Bank (two policies of IDBI Federal Life Insurance Co) and ICICI Bank (five policies of ICICI Pru Life Insurance). There is also a TATA AIG policy.

The premium figures he refers to are so huge, that I don’t want to mention them here them without looking at the policy documents. Did he buy policies to get loans? A State Bank of India official has sent me a list of bankers who coerce SME borrowers to buy insurance policies simply to process loans.

The story is repeated at all nationalised banks, because the perks for such sales include foreign junkets, commissions, conveyance and no transfers. And this is happening even at the level of chief general managers!

Mr Mallick is in a financial mess. Banks have collected their commissions and the insurers are foreclosing the policies because he can’t pay. Mr Mallick is either completely financially illiterate, or, as he says, a victim of ‘gross mis-selling’. Unfortunately, at present, RBI’s regulatory infrastructure has absolutely no sympathy for people like Mr Mallick. If he writes to RBI’s banking ombudsman (BO), his case will be dismissed without even the right to appeal, as the BO had done in Suchitra Krishnamoorthi’s case and those of countless others. All that the BO will ask is whether or not he had signed the insurance documents. If the answer is yes, the case is dismissed.

The real question is: Why would anyone, in his right senses, buy 17 insurance policies and commit to the payment of such high premiums? We believe he was made false promises by his bankers, taking advantage of his financial illiteracy. Like Suchitra Krishnamoothi, he too made the mistake of trusting his bankers and did not suspect that they would mislead him.

Mr Mallick is not alone. There is Mr Rakshit, a 74-year old marine engineer, who is HSBC’s customer since 1963. His funds with the Bank exceeded Rs72 lakh; a big chunk was invested in mutual funds, under the advice of a fund manager. After this ‘advice’ led to a Rs25-lakh loss in 2010, he asked that the money be invested in safer fixed deposits. But that led to the real loot.

Mr Rakshit was apparently persuaded to write cheques totalling Rs44 lakh in the name of Sarogi Sales Corporation, a firm belonging to his relationship manager’s father. Another Rs11.5 lakh went to the relationship manager’s mother. He was further conned into transferring a flat to the relationship manager’s family, complete with registration deed (the family claims it was under the guise of a tenancy deed).

Mr Rakshit’s family approached RBI for help, but HSBC neatly shifted the onus of explaining the weird transactions on to the senior citizen and termed it a private matter between the two. Why would a senior citizen transfer money and assets to his bank manager? Shouldn’t the Bank or the employee explain? But RBI does not seem to be pushing HSBC hard enough probably because there was no NGO to keep up the pressure. The Rakshits have filed a civil and criminal case in Kolkata and, given our slow judicial system, it is advantage HSBC at the moment.
Then there is professor Tiwari from Guwahati who has written to us about being ‘mis-sold’ 21 policies by HDFC Life, Reliance Life Insurance and Birla Sunlife. Thanks to the efforts of Moneylife Foundation’s Insurance Helpline, and our expert Raj Pradhan, Mr Tiwari got back Rs5.1 lakh from Reliance Life Insurance and HDFC Life Insurance.

We are now attempting to get a more recalcitrant Birla Sunlife, which has sold him insurance in identical circumstances, to refund his money. Again, why would a man need 21 insurance policies? He was clearly made to believe he was buying an investment product. Mr Tiwari of Guwahati heard about resource-crunched, Moneylife Foundation through Uday Dhoot and Rahul Agarwal, two insurance intermediaries.

They are members of the Council for Financial Planners (COFP), one of the many bodies floated by financial intermediaries to push their agenda. We assume, in good faith, that
Mr Dhoot and Mr Agarwal, referred Mr Tiwari to Moneylife Foundation only after failing to get him a refund themselves. Both are at pains to say that Mr Tiwari is not their client, but won’t say who sold him 21 insurance policies.

Now here is the irony. While Mr Dhoot and Mr Agarwal got Moneylife Foundation working hard for Mr Tiwari’s refund, they were themselves busy with a COFP ‘convention’ fully funded by top mutual fund companies of the very same groups that ‘mis sold’ the policies—Birla Sunlife, HDFC Mutual Fund and Reliance Mutual Fund—at a five-star venue in Bengaluru.

Since the market regulator mandates mutual funds to spend a chunk of money on enhancing ‘financial literacy’, much of this spending goes for lavish conventions by financial intermediaries rather than consumers of financial services who need the literacy effort.

In fact, there is hardly any financial support to those involved in real advocacy, grievance redress and education efforts, because activist organisations hurt the interest of these financial service providers. Regulators, as well as the financial services industry, are fully aware of this hypocrisy; but large sums of money continue to be funnelled into gratification efforts in the name of promoting financial literacy.

Moneylife Foundation took up the issue of mis-selling of third-party financial products with RBI governor, Dr Raghuram Rajan. We are most upbeat that Dr Rajan, once he applies his mind to the issue, will begin to see how people’s finances are decimated by bankers who prey on their ‘trust’.

We are especially heartened by the speed with which he has directed banks not to levy penalties for failure to maintain minimum balances on inoperative accounts. He has also implemented the long-pending demand to scrap foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, through a directive.

At the time of our meeting, banks and intermediaries seem to have made the case that an outright ban on sale of third-party products would cause ‘the pendulum to swing too far’ against banks.

He was also under the impression that RBI meticulously studies thousands of complaints that it receives and acts in the interest of consumers. The truth is that the pendulum is stuck at the other end and the global move towards treating customers fairly has not gone beyond lip-service in India.

Who better to endorse this than Dr KC Chakrabarty, the former deputy governor, who never failed to say that it took years to implement even obvious decisions in India? Personally, I see the 6th and 7th May directives as a signal that Dr Rajan is beginning to take a hard look at how customers are treated.

RBI is focused on financial inclusion, but without a clear consumer protection framework which spells out accountability and punishment. As a result, every effort to bring in new customers will only lead to more disenchantment.

Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]



u k saluja

2 years ago

I would like to bring to your kind information that many companies from Mumbai/Indore like AVON Corporation Ltd., Micro Technologies India Ltd. and Plethico Pharmaceuticals have been asking for fixed deposits which were being promoted by Bajaj Capital Limited in Delhi/NCR. All these three companies are not paying back money to their matured fd holders on due dates and emails/telephone calls made to them are either not replied or absurd committments are made. Bajaj Capital has also washed their hands off the responsibility and advised us to file complaints to CLB who have already issued many orders in January and March 2014 to these companies to payback to their fdholders who had filed cases earlier. This is a scam being played in the financial capital of the country and old and infirm are being taken for a ride by promoters of these companies. Implementation of orders issued by CLB is also extremely slow and/or payments delayed on one or the other pretext. It would be appreciated if moneylife could bring managements of these companies on board to redress grievances of their stakeholders on priority and do a great service to the senior citizens/housewives and sick people. Thanks.

Dinesh Acharya

2 years ago

I have utmost respect for the untiring efforts you and your foundation put to help people. In the article you have mentioned one person as a marine engineer. Mariners are one of the most easy prey for agents. Totally out of touch with the real world and trustworthy and flush with funds.


2 years ago

Its is the mistake of RBI to permit banks to sell insurance policies.And you will be surprised to know that there is a quarterly target of insurance business for staff in the banks. If they don't perform they are sacked & if they perform they are promoted & clients are taken for a ride.RBI should make the banks responsible for non-payment of renewals and should force bank to pay renewals from the profits of the bank as its a clear case of MIS-SELLING to Mr Mallick of Sambalpur.

jaideep shirali

2 years ago

Mis-selling of financial products is rampant, partly due to the ignorance of the banks themselves. Shop keeper insurance policy being used to insure a factory is an example,used because the shopkeeper policy is cheaper. Part of the problem lies with customers, who haggle with a vegetable vendor for a Rs. 5 discount, but sign a form and a Rs.50,000 cheque with almost no questions. We seem to have this, " I do not have the time, just tell me where to sign", approach regarding investments. Schemes which promise, say 27% p.a. when bank FDs are at 9 % p.a. should raise red flags, but we have people merrily investing and then saying RBI/ SEBI should protect them. I do not understand how we are so casual with our own money. We must develop a habit of asking many questions, before we sign an investment form and cheque, it's finally our money.


NAGARAJ Tirumani Vemula

In Reply to jaideep shirali 2 years ago

You are right. Ignorance is a bliss for deceivers.

Yerram Raju Behara

2 years ago

This is no strange news. Banks have been mis-selling insurance products ever since their introduction. 17 policies in one name and on inter-connected platforms and are these beyond the audit trail? RBI and IRDA ARE MUTE SPECTATORS. It is time such things are fought to the last breath by MLF and ensure an exemplary punishment by way of penalties to the institutions apart from compensation to the aggrieved.

Joseph Korah

2 years ago

Such a sad state of affairs especially to see how the Old and Infirm are being looted by these Bank Managers by miss-selling Insurance Policies. clearly no one would need 17 and 21 Insurance Policies. Hats off to Money Life foundation and its team in highlighting such issues and bringing it to the public. Only hope for the people is immediate action from the RBI Governor Dr. Rajan to set right these matters.

Mohan Bhaya

2 years ago

I wish we had 1000 Sucheta's in our stupid country. We need to caution Old and infirm to beware of the trap, Stock Broking co:s have laid to rob Old and infirm, of their savings.The modus operandi is they make the Old, to sign for F&O, on totally false assurances.Once the Old man falls in the Trap, they waste no time to rob him off his savings. The Old and Infirm can not even fight back and Sebi, instead of being a Police acts like a Post Office.


2 years ago

Can we blame investors for not investing in financial products and for investing in land if such blatant mis-selling happens repeatedly?

These entire issues stem from the fact that incentive system is skewed towards upfront payment. As long as the intermediary keeps on getting his commission / remuneration without having to worry about performance of client’s money, there will be no solution for mis-selling.

Do we need so many regulations and rules if “only trail commission” is adopted across the financial products? Wouldn’t financial services be a more respectable industry then?

Mr.Rakshit’s case is an extreme one and there should be a mechanism to deal with such matters within the regulatory frame work if there is a prima facie evidence of mis-use of one’s position in a bank . The basic fact is Mr.Rakshit might not have trusted so blindly had it not been a bank employee.


2 years ago

Financial conning: Follows in the footsteps of Indian Governance, the operative leit motif of which is CONNING:

Effects of uncertain monsoon projection on food supply

Markets are bracing for a possible global food shortage amidst fears that an unpredictable El Nino could see crops drowned by heavy rains in the American mid-west and shrivelled by excessive heat in Australia, South east Asia, India and Africa

As the election process ends today, the public are now looking forward to the declaration of results on 16th May. It is reported that the present United Progressive Alliance (UPA) government may submit its resignation to the President, who will, upon knowing the election results will decide the next step to be taken in inviting the leader of the victorious party to form the government.


In the interim budget, the UPA government had made provision, for the first four months, covering April-July, a sum of Rs28,000 crore as subsidy for urea, both imported and indigenous and decontrolled fertiliser. It appears the subsidy allocated for this purpose is already exhausted and the Finance Ministry have to take a call on for arranging Rs18,000 crore as special banking facility to pay for subsidy dues to fertiliser companies. Presumably, it would depend upon the election results, and they may choose to leave this decision to the new incoming government.


From the media reports it appears that the Fertiliser Ministry feels that the total subsidy may require Rs90,000 crore, including Rs10,000 crore on account of gas price revision for this fiscal. Here again, the decision on gas price itself, which was orginally gazetted on 17th January, and which could not be implemented, due to the model code of conduct,coming into force, may now rest with the new government. Not a very comfortable situation to be in!


As for the increased cost of subsidy, this is attributed to the change in fixed cost of urea, as the government increased it to Rs350 from Rs200 per tonne. Since there is no revision in the selling price and the difference between the cost and selling price is paid by the government, the subsidy will go up - unless the new government makes its own ruling on the subject.


India's total consumption of Urea alone is about 30 million tonnes (mt), 22mt of which comes from 16 fertilizer units, who obtain gas from Reliance Industries' KG-D6, and the balance of 8mt is imported. According to the Fertiliser Association of India, the total sale of nutrients in 2013-14 amounted to 51.23mt. According to the press reports, Satish Chander, Director General of Fertiliser Association has called for reforms in the industry.


The government decides the cost to end price and he says this sector needs to be decontrolled because of the increase in cost of production. He has contended that the price of feed stock of natural gas in north India is lower than what southern manufactures have to be paid. Delays in release of subsidy has caused trouble and at the same time balanced usage of urea also needs to be implemented. He points out that the maximum retail price (MRP) for urea in India is the lowest in the world at $85, whereas it is $250 in Bangladesh, $350-400 in Pakistan and $350 in China, all without subsidies!


Satish Chander has further charged that urea policy by the government enables increased usage of highly subsidised fertiliser resulting in spoiling of soil health in the country.


The weather conditions continue to cause worry, not only in India but all over the world, due to the uncertainty of the anticipated El Nino strike! The Indian Meterological Department (IMD) still expects the south west monsoon will be lower than normal this year with a 60% probability of El Nino occurance. The government scientists in the US say that El Nino odds may rise to 80% during the "late fall/early winder of this year". But, at the moment, the intensity of this El Nino effect cannot be measured or projected.


As far as the fertiliser companies are concerned, many like the Indian Potash and Zuari have began to confirm orders for supply to meet this year's requirements. Almost 1.6 million tonnes have been contracted, as per press reports.


In a recent article, Prof MS Swaminathan has stated that "the new government must accord priority to both water scarcity and water use efficiency. Water harvesting in homes, farms and factories must become mandatory". Also, he has pointed out that the rain-cum-solar energy centre at Chennai as a source of credible public information on rain water harvesting and solar energy use. Such centres need to be replicated in all our cities, towns and block headquarters"


In Prof Swaminathan's estimation, though we have adequate foodgrain stocks to meet the national food security needs, in case of severe drought conditions, these will only cover 75% of the population and in the event of such a mishap happening, our stocks will be completely wiped out!


In general, "markets are bracing for a possible global food shortage amidst fears that an unpredictable El Nino could see crops drowned by heavy rains in the American mid-west and shrivelled by excessive heat in Australia, South east Asia, India and Africa."


The new government needs to have a very experienced and responsible professional agriculturist in the top of the Ministry of Agriculture to advice the new Minister who will take over this gigantic responsibility.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


Why China failed in creating own brands

Western markets are not dominated by Chinese brands. It is the Chinese market that is being dominated by foreign brands. Even in surveys, local Chinese brands get criticized for poor quality and engineering and lacks the trust

When China started to make cars, a chill went through automakers in the US and Europe. They shared a vision of millions of cars made with exceptionally cheap labour landing on western shores. It looked like a repeat of the success experienced by the two exporting powerhouses, Japan and Korea. Besides, China was well on its way to become the workshop of the world dominating sector after sector. Why not cars?


Why not indeed. Something happened that had not been predicted by the economists and analysts. It wasn’t the western markets that were dominated by Chinese brands. It was the Chinese market that became dominated by foreign brands.


Ten years ago, Chinese brands controlled 70% of the local market. Now they have been reduced to 45%. If you exclude the barebones pickup trucks and minivans that make up the light commercial vehicle market, domestic brands have only 29.5% of the market.


Even in a globalized world, it is distressing to watch foreigners come to dominate a local markets. This is especially, true for an important industrial segment like automobile manufacturing. Even in the US, where the Japanese cars have been present for 40 years, there are places where it is considered unpatriotic to own one.


Why have the Chinese failed to build successful brands even in their home market? Obviously, they have not been able to match the quality of developed countries’ manufacturers. Until recently, they were very competitive on price. Why can’t they seem to develop successful brands?


The reason for the failure is the way the Chinese government use their legal and regulatory system. Foreign companies coming to China to produce products for export were lightly regulated in every way. China wanted to encourage exports and follow the Japanese model. In contrast, foreign companies that wanted to sell into China faced discrimination.


In theory, this sort of protectionism should have worked, but instead it backfired. The first problem for local brands was a lack of trust. For example, large Chinese dairies were only subject to minimal safety regulations. They took advantage of this by lacing infant formula with melamine a byproduct of coal. Melamine was put into the formula to allow substandard milk to pass protein tests. The result was a national scandal in 2008. Six children died and over 300,000 were sickened.


To this day, Chinese consumers go to great lengths to buy foreign brands. They even ask their friends traveling to other countries to send back infant formula a few cases at a time.


Rather than force local dairies, many of them government owned, to adhere to stricter standards, the Chinese government used laws, policy and even the state media to strike back at foreign brands.


The state television has accused Danone, the French food company, of bribing hospitals in Tianjin to use its infant formula. It restricts importation of foreign infant formula created for other markets imported by third parties into China. To help local dairies it has created subsidies.


The auto industry has similar problems. Domestic Chinese auto companies didn’t do well in crash tests. In surveys, local brands get criticized for poor quality and engineering.


Foreign companies are required to form 50-50 partnerships with local firms. The Chinese were thinking of dropping this requirement. Trading partners might retaliate if China were ever to start exporting cars in large numbers. But since they don’t, the largest politically connected; state owned Chinese companies were able to keep the restriction in force. With this type of protectionism in place, it is even more unlikely that China will be able to develop export markets.


The Chinese required foreign companies to produce “indigenous” brands. For example BMW Brilliance makes the local Zinoro. Dongfeng Nissan builds the Venucia. The most successful is the SAIC-GM-Wuling Automobile Company’s Baojun. They sold 100,000 Baojins in 2013 up 20%. This would be great except that Baojun’s achievement came at the expense of local Chinese brands.


China has also inhibited foreign competition by failing to enforce intellectual property laws. Stealing intellectual property in China is done on a massive scale including wide spread computer hacking to steal information.


Stealing from foreigners may seem like a good idea in the short term. But if Chinese companies can steal from western companies they can also steal from each other. A brand is one of the most important and valuable assets of any company. If it cannot be protected, then companies do not have an incentive to build it up.


Consumers in India, Indonesia and the Philippines do not have the overwhelming preference for foreign brands. Indonesia and the Philippines actually have a clear preference for local brands. India gives the foreign brands a slight edge.


What is interesting is that although their preferences are slightly different, the views of local and foreign brands in these three countries are quite similar. Foreign brands are considered to be more fashionable and of better quality. Local brands are believed to offer a better price. There is a universal preference to support local companies. As to reliability, consumers in all countries rated both local and foreign brands about equally.


It’s not that Chinese companies cannot compete with foreigners. Jin Duo Bao is a cold herbal tea that outsells Coca-Cola in China even though it is more expensive. It sells well because it is appeals to local beliefs and preferences.


Rather than attempt to regulate the market, the Chinese should take a lesson from the Indian processed foods market. The local companies view their competitors as positive. With large advertising budgets foreign firms have been able to increase the size of the market and create new market segments that nimble local companies with better distribution and local knowledge can exploit.


Every policy, every law, every regulation created by governments to solve a problem will have unintended consequences. These are sometimes worse than the issue that was meant to be solved. Sometimes the best use of power is not to use it at all.


( William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and speaks four languages.)




2 years ago

Well your argument may be true in consumer goods, but I see the opposite in industrial goods. In every industry, be it telecom, energy, Chinese companies have built brand value and are gaining market share. So how do we explain that?

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