Regulations
Consumer Protection: What Raghuram Rajan missed talking about

Having predicted the 2008 financial crash and been involved with the financial sector closely since then the RBI governor surely knows that the West has made consumer financial protection a centrepiece of financial sector regulation. How about setting the ball rolling in that direction in India too?

Raghuram Rajan has been garnering a lot of plaudits and praises for his first speech as governor of the Reserve Bank of India (RBI). However, he failed to mention one of the most important aspects of the banking system, or the entire financial system for that matter: consumer protection.
 

As a brilliant person who is well versed with the intricacies of finance and banking, he shot to fame when he predicted the financial crisis of 2008, when he knew that US consumers were hard sold cheap mortgages they couldn’t afford. Having realised this, the US government set up Consumer Finance Protection Bureau and the UK government had set up Financial Conduct Authority which will have the power to regulate all providers of financial across different sectors. Even in India Financial Sector Legislative Reforms Committee has suggested exactly the same approach of a special consumer protection agency.
 

However, it is surprising that he has not mentioned anything about consumer protection or mis-selling which mentioning that banks should expand freely. Mis-selling is far more rampant here than in the US because Indian regulators are often lax and ignorant about many issues plaguing consumers, from hard-selling third-party products to non-transparent banking charges and so on.
 

Moneylife Foundation has been batting for consumers over the years and has raised several issues on banking, consumer protection and safety of products. With over 23,000 members, it has stumbled upon a wide variety of cases of mis-selling, cheating, some of which are horrifying because they are targeted at senior citizens and women. Unfortunately, the spate of mis-selling over the years has caused Indian investors and savers to lose money and lose trust in the financial system.
 

If Raghuram Rajan is interested in batting for the Indian investor and saver, if he is interested in restoring the faith of the Indian banking system and get people to trust bankers and financial intermediaries again, then here are the list of issues he can look at, all of which Moneylife has written about over the years:

  1. Banking Charges that customers do not know about and are not aware : While banks argue that customers must pay for the convenience of modern banking, there is a growing sense of frustration among customers about the constant, stealthy increase in bank charges. But many don’t even know what exactly these charges are, even amongst the financially savvy.
  2. The problem with wealth management department run by banks: RBI had admitted that mis-selling is a problem in India in its 7th Financial Stability Report. Banks sell non-banking products and often club it with core banking products. Many savers are not financial savvy to understand complicated wealth management products. However, Moneylife found that some of the proposals in the report were found flawed. Moreover, will it implement and translate the suggestions into rules? Even celebrities like Suchitra Krishnamoorthy were cheated of crores of rupees because of this.
  3. Complicated and vague KYC rules harass consumers more than it helps: Moneylife had found out that some banks had taken their KYC measures a step too far, which had resulted in several irate customers complaining to Moneylife.
  4. Gold sales by banks: Banks are allowed to sell gold, at ridiculous rates, while they are not allowed to buy back from the customer. The earlier regime of RBI actually encouraged people to invest in gold. Because banks were not allowed to buy back gold, many consumers who were forced to buy from banks were stuck and had no where else to go but sell to jewellers at much lower rates. Here too, KYC was found to be inconsistent.
  5. Poor auditing of IT systems leading to glitches and harming consumers: Moneylife has come across many cases where savers, some of them old, had found that their TDS had been wrongly calculated, leading to lower interest payments, thanks to glitches in IT systems. All this leads to tax issues for consumers for no fault of theirs. Old people are the worst affected. Similarly, another bank printed out sensitive information like username and password on an envelope!
  6. Grievance Redress is poor and leaves a lot to be desired: One of the most important aspects of any product or customer service is ability to handle any complaint and rectify situations. Unfortunately, the grievance redress system is nearly broken while the banking ombudsman handles only complaint up to Rs25 lakh. Consumers who are mis-sold products over Rs25 lakh, particularly PMS-bundled products sold by banks, cannot approach the banking ombudsman.

Mr Rajan may like to know that Banking Code and Standards Board of India was created to enforce ethical and consumer-friendly practices but the code is voluntary. Brilliant, innovative and energetic that he is, we believe that Mr Rajan will have some new thoughts on effective consumer protection in the banking sector too. We wonder when he will start articulating his thoughts in this direction.

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COMMENTS

srinivasan

4 years ago

hasty comments!let's wait for the sept 19 (or 16)message from him.
'customers' have to wait when the macros are menacing.

REPLY

Vinay Joshi

In Reply to srinivasan 4 years ago

Dear Mr. Srinivasan;

How rightly have you pointed it out & certainly the comprehension of MLDT is at fore! With its people like Mr.Nagesh Kini, FCA, COMMENTING!? WITHOUT UNDERSTANDING MACROECONOMICS BEHAVING LIKE ACTIVIST, OPPOSITION POLITICAL PARTIES!?

Sept;7, night he is leaving to attend BASEL III conference of Sept;8-9. On return he will, going thro' the aspects, as he had candidly announced, he will declare the mid quarter 'review policy' on Sept,20, after FOMC 17-18 announcement. WHY? why postponed?

To answer Mr. B.Ramesh Adiga, was ML,MLDT, sleeping & never raised the issues? If so, WHY TODAY ML & MLDT THINK ABOUT IT? WAS DR.SUBBARAO INACCESSIBLE? To a stalwart like Sucheta! WHEN Dr.K.C Chakrabarty was a guest speaker, invited to speak, what message was driven to him?

Why now as speaker, activist of ML/ MLDT, Mr.Nagesh Kini, FCA, STATES THAT 'WE ARE NOW GOING [by Boeing] TO PRESENT OUR - IN FACT HE STATES ML NEEDS TO SUBMIT IT's MEMORANDUM! To DG!

The DG may resign & go as Mr.Rakesh Mohan!

Why Mr.Nagesh Kini, FCA, instead of replying to me stating 'nothing to read between lines', & CAN'T UNDERSTAND WHAT'S NEW TO COMPREHEND SADDENS ME!?

Sorry gentlemen including MR.Nagesh Kini, FCA, i'm putting up this combined reply to you three, i was not wanting put up separate.

Mr.Nagesh Kini, FCA, in the simmering crisis you, MLDT, ML expect addressing micro issues?

FYI, RR, like proverbial 'frog in the pot'! He has to realise he is not cooked & be too late on MACROECONOMICS! YOU ARE TALKING of micro?????

As we are not discussing macro, i leave it here - but to MAKE UNDERSTAND 'reading between the lines' OF MY POSTS, i've put forth.

Regards,

P.S - Mr. Nagesh Kini, FCA, you've not answered me on Jignesh Shah expose, your ML founders, praising him, IN THEIR AUTHORED BOOK- now tanking him, got him to the level of Keki Dadiseth & Mr.K.V Kamath.

Apart, of all the things, you HAVE NOT ANSWERED ME THE ROLE PLAYED BY AUDITORS IN THE FIASCO, BE IT BANKS , OTHERWISE. rgds,

Sucheta Dalal

In Reply to Vinay Joshi 4 years ago

Yes Mr Vinay Joshi... Dr Subba Rao was completely inaccessible. He sent us one email letter, which said NOTHING.
Mr Anand Sinha has the CIBIL issue to look at -- he also chooses NOT TO REPLY.

Mr U K Sinha is not only inaccessible ( I used to know him well when he was in the finance ministry) but SEBI gives ridiculous answers even to the Minister to be repeated in parliament. Nobody questions it or studies facts.
You are clearly VERY well informed and brilliant. BUT all you do is not needle us on this forum. Why dont you join our TINY effort and strengthen it? We are a tiny team doing 3 different things... dont you think you have the right to expect more when you contribute to our effort? We do what we can with tiny resources.

nagesh kini

In Reply to Sucheta Dalal 4 years ago

I completely agree with Sucheta.

nagesh kini

In Reply to Sucheta Dalal 4 years ago

I completely agree with Sucheta.

Vinay Joshi

In Reply to Sucheta Dalal 4 years ago

Hello Ms. Sucheta,

Noted your reply with due diligence. As reiterated I have highest respect for ML, be it Ms. Sucheta or Mr.Debashis, MLDT, certain other gentlemen viz, Mr. Nagesh Kini, FCA, Dr.A.K Ramdas, even Mr.Vivek & Mr.Raj Pradhan, Gurpur [should I disclose his name?] & Ms.Vinita. [she is exemplary, also Ms.Namita, she doesn't contribute much.]

Thanx for your left hand compliments at the same time stating ‘not needle us’, indirectly stating that I should be willing to state ‘a spade is a spade’ is what is read unless otherwise as it may mean.

The only aspect as you have known thro’ your three decades journalistic career is ‘authenticity’!? Am’I wrong? You are defeating the premise!? I’m not criticizing. There is a Marathi saying ‘nindakache ghar asave shejari’ – meaning ‘be your neighbor a critic’! [your are well versed with Marathi!]

Ms. Sucheta if Dr.Subbarao, was inaccessible, no audience & no submission of memorandum, why have not made it a press issue? Was that inaccessible? I understand your modest approach. On the farewell evening he was dancing to certain film tunes. [taking some steps, not virtual dancing.]

Well SEBI, no comments, or SEBI v.MCX-SX, et al, trashed it out from my ‘hard disc’, my neurological functions should be proper.

Well Ms.Sucheta, my view point is absolutely different & ‘no needle’, or as earlier yr mail msg to me ‘heckle’, on Soma Bagaria, or Anil Harish. These reputed professionals can’t counter professionally? BECAUSE THEY HAD NO ANSWERS, they only lobby. Ms.Soma a beginner not accustomed, if, but with limited aspects. I’ve respect for them, undoubtedly.

Ms. Sucheta, the need is to promote the e-paper, e-communication to the computer savvy GenX. This coupled with financial literacy as is your noble endeavour, expose & alerting & trying to get to book the culprits.

Ms.Sucheta, today slowdown has taken a toll on media houses. The world over print worst affected, Indian TV channels are cutting back programming BUT the internet / broadband, Wi-FI, coming 4G, will be in the offing.

My conservative estimate the INR depreciation will cost the print media additional of 1KCR+ FY14, 1.2mt import, [yr mag cost increase!] necessitating move to the digital domain. So to be on platform a must & should not be used as branding exercise only, without authentic contents. Complex subject.

Hence Ms.Sucheta you have a first mover advantage & earnestly wish you, ML, MLF, get into center stage.

Regards,

Vinay Joshi

In Reply to Sucheta Dalal 4 years ago

Hello Ms.Sucheta,

Further to my earlier post, as was on different an issue tho'with diversion, all said.

The resources --CSR the possible aspects have to be clarified & many clarifications are underway.

Hence your NGO can benefit from this & i may try depending.

But at the same time i have your mail msg, wherein you have stated that you're sufficiently funded & no funds required.

Well, i'll dismiss it as an 'aberration', w/o contradicting yr abv st on resources.

As per my earlier post in reply today, MLF should grow in strength.

Regards,

nagesh kini

In Reply to Vinay Joshi 4 years ago

He has nothing new to say!

Vinay Joshi

In Reply to nagesh kini 4 years ago

FORUM WILL JUDGE!? rgds,

nagesh kini

In Reply to Vinay Joshi 4 years ago

He has nothing new to say!

Vinay Joshi

In Reply to Vinay Joshi 4 years ago

Hello All,

By the way Keki Dadiseth & Mr.K.V Kamath, are world renowned personalities, admired & respected.

Regards,

B Ramesh Adiga

In Reply to srinivasan 4 years ago

. . Not necessarily. He surely can think over the issues underscored here and give his considered response in his forthcoming interactions. In any case, the ML has laid the platform for debate on certain burning issues. It is welcome.

Param

4 years ago

'he has not mentioned anything about consumer protection or mis-selling which mentioning that banks should expand freely.'

should it be 'while' instead of 'which'?

Satya Sharma

4 years ago

Unfortunately in India the banking industry or to that matter any industry lobbying is so strong that consumer power cannot stand tall. With this situation, who ever may be the Governor of RBI, it does not any sense to consumers. Consumer Power should be made stronger in Asia especially in countries like Bangladesh, India, Indonesia and China.

nagesh kini

4 years ago

If only the PMO and MOF were made aware that Joshi sab, knew much more than RR, the new RBI Governor, they would not have had to go in search of an NRI?

Where is the need to go hammer and tongs on ML & MLDT he claims he 'highly respects'?

It must be remembered that making use of high end funda makes for utter nonsense in everyday life!

MLF needs to submit a Memorandum on the Consumer concerns to RR. After all his DG Dr.KCC is fully aware of all the issues.

REPLY

Vinay Joshi

In Reply to nagesh kini 4 years ago

Read between the lines before commenting. If required my detail comments will follow. MLDT!?

Regards,

nagesh kini

In Reply to Vinay Joshi 4 years ago

There is nothing to 'read in the lines' why go 'between' them? After all there is nothing new!

Vinay Joshi

4 years ago

MLDT,

As usual you can write, without knowing what is stated or what is required to be stated?

MLDT; firstly all that is said can be put to villagers on loudspeakers & not in ML, if ML can ascertain posts of its valued contributors!?

MLDT, kindly make it known ML founders & ML highly respected by me, its goal & their dedication to perceive it . BUT YR POSTS DEMEAN ML!!!?? I’ve no idea how they are carried!

So, MLDT, in the first place you have assumed that the new RBI Guv; SHOULD STRAIGHTAWAY COME MICROECONOMICS, THAT TOO IN HIS INAUGURAL SPPECH -- OR IT SEEMS YOU EXPECTED HIM TO BE IN CHARGE AS NEWLY APPOINTED, CMD OF NATIONALISED BANK DELIVERING HIS AGM SPEECH! What a pitty? MLDT! MLDT pl improve your posts.

MLDT, its easy to state that Rajan predicted, WITHOUT KNOWING his premise then. CAN MLDT TELL WHAT was he talking about which eventually happened after three years?

WHAT WAS HE TALKING IN 2005? Let me know.

Bank branch expansion is different an issue beyond the comprehension of MLDT & its implications questioned in view of mis selling?

MLDT in the last ten years HOW MANY TIMES HAVE YOU & YOUR ML MET THE RBI GUV; TO ADDRESS THE ISSUE? If at all, the outcome? WHY HAVE YOU NOT HAULED THE ERSTWHILE GUV’s? Never reported! Apart from taking isolated representation & reporting.

MLDT, I’m of the opinion THAT YOU CAN COACH THE RBI GUV!!!???

Regards,

Vinayak Bhimarao Mudholkar

4 years ago

America’s industrial economy — one in which companies compete not on price and quality but in political influence, and earn profits not by attracting customers with good service, but by using the power of the state to protect markets and force customers into the fold-Matt Taibbi, Griftopia
If this is the reality in US then what to expect in India....This is the dark side of Capitalism.

REPLY

Vinay Joshi

In Reply to Vinayak Bhimarao Mudholkar 4 years ago

Dear Mr. Vinayak Bhimarao Mudholkar,

Have you ever heard of 'Anti Trust' laws, 'Class Action' suit? As well in EU?

So if Matt, in picture can he now answer US corn production risen with soy & cereals thereby the grain commodities market down, corn futures down & trading at 436.50!11% rise in reaping harvest.

The REALITY IN US IS THEY ARE ON STRONG FOOTING, WANTING TO TAPER OFF STIMULUS - WITHOUT THE CONCERN OF INDIAN PM OR BRICS IN ONGOING G20 SUMMIT. The St.Petersburg afternoon report i had was deliberations ongoing, in Germany Mario Draghi, declaring out from six quarters expanded by 0.3%, expect keeping rates steady.

AUG ISM non mfgr risen to 58.6, tho' July factory order drop 2.4% but ex-transport 1.2%. Job data will be released Friday, with other data.

Who is the 'grifter class'? Only monetary?!

Regards,

Cummins India’s FY14F to remain weak on falling powergen demand

There is a continued sense of concern over the near-term outlook on powergen and exports segments for Cummins India, according to Nomura Financial Advisory and

Securities in its research note on the company based on its meeting with Rajiv Batra, CFO, Cummins India. However, export realisations could lead to gains in margins on account of the depreciating rupee.

 

Nomura recommends investors to remain focused on the fundamentally superior business model and franchise that Cummins India offers with a solid long-term opportunity in a power-short India. Nomura had been waiting for a better entry point given its expensive valuations so far. The Cummins India has a ‘Neutral’ recommendation with a target price of Rs382.

 

In the long term, Nomura believes that India’s industrial sector offers the unfolding of a substantial opportunity in coming years. In particular, it sees potential opportunities in niche segments. Powergen is one of the best hi-tech niche segments.

 

The business forecast for Cummins India, according to Nomura analysts, is given below:

 

 

According to the CFO of the company, the overall economic slowdown is a big worry and that has led to the postponement of capex decisions, thus, hurting back-up power demand. A continued slowdown in capex decisions for industrial/ commercial projects could continue to hamper powergen growth beyond what is already visible, Nomura adds in its research note.

 

On the industrial segment, the Nomura research note mentions that the company had been doing well until now led by water well rigs (40% of the segment now) on the back of water scarcity last year. However, good monsoons this year could be a concern for the demand from this segment, in our view. Other bit of demand support for the segment continues from construction equipment original equipment manufacturers (OEMs) which are seeing increased offtake due to better export pricing.

 

On the exports side, according to Nomura, only 15% of the company’s exports in the high HP segment (2/3rd of all exports) are into the US, while Middle East, Europe/Russia and Africa contribute about 40% where demand is still declining. As such, hopes of a US recovery benefitting exports are misled, in Nomura’s view.

 

The CFO also expects that the replacement cycle of DG sets will elongate from the current 8-10 years to 10-15 years as the usage of gensets is decreasing following better power availability, concludes the Nomura research note.

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Morgan Stanley cuts 2013-14 earnings growth for Sensex to 10.5%

It expects earnings growth to be 12.7% in 2014-15

Morgan Stanley Research, in its note on the stock market, is trimming its broad market earnings growth forecast for F2014 to -6% from 12% and is introducing an estimate of 5% for F2015.  It has cut its Sensex earnings growth estimates from 10.5% to 4.1% for FY2014 and from 19.0% to 12.7% for F2015.  Morgan Stanley has issued a new 12-month forward Sensex target of 18,200. 

 

There is however, a 35% probability of a bear market scenario and hence, a 14% fall in the Sensex. These forecasts are shown in the chart below:

 


The research note suggests that RBI will reaffirm that high rates will linger (via a repo rate hike, for example) and the government needs to endorse fiscal consolidation (which could be at risk – a steep diesel price hike could be a good change). Both agencies are impeded; the former by the state of growth and the latter by the political cycle.  Sans policy measures, the market will be punitive with prices (especially the Indian rupee) forcing macro rebalancing.  In time, higher public savings and real rates will bring down the current deficit, forecasts Morgan Stanley.

 

Morgan Stanley’s (MS) research note also evaluates as what the stock market is pricing in. Its valuation template is the equity yield minus short-term yield as in 1998.  A negative gap implies the market is not cheap. The market is pricing in 6M (six months) forward 9% nominal IIP growth (MS estimate 4%) and -5% one-year forward earnings growth (versus MS -6% F14 estimate) and it offers a 5.8% risk premium (below MS 6% fair level estimate). The problem is duration and not just the depth of price correction, concludes the research note. This means that it will take a long time for market cycle to turn up.

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