Who will curb mis-selling: IRDA or RBI?
Under Dr Raghuram Rajan’s dispensation, banks have been given far greater freedom to do business. At a time when consumer organisations have been agitated about the rampant mis-selling and arm-twisting by bankers to purchase insurance, the Reserve Bank of India (RBI) has given them a further boost. On 16th January, RBI allowed banks to act as insurance brokers (with no risk participation), permitting them to sell multiple insurance policies.
The move is ostensibly aimed at increasing insurance penetration in India. Banks have been allowed to opt for the broking model, or a corporate agency model, for selling insurance through a subsidiary, joint venture or even departmentally. Insurance brokers have far more onerous responsibility compared to agents; they are supposed to be on the customers’ side unlike agents who represent the insurer’s interest. Will banks be interested in broking?
Banks have been asked to ensure that there is no mis-selling and products are appropriate for customers’ needs. There is also a prohibition on cash and non-cash incentives being paid by the insurance company to staff of the insurance broking entity. Who will check this—the RBI or the insurance regulator? Given the rampant arm-twisting of borrowers that is already public knowledge, isn’t it clear that banks have little interest in stopping it because they earn commission?
Insurance broking rules ask banks to frame policies for redress of consumer complaints, albeit with the warning that “Violation of the above instructions will be viewed seriously and will invite deterrent penal action against the bank.” The question is: Will RBI initiate this action or push customers to the insurance regulator whose record of grievance redress is pathetic and most cases land up in consumer courts?
RBI has adopted a similar, hands-off approach with regard to its consumer charter which it touts as a big step forward in customer protection. On paper, the charter is supposed to ensure that consumers are treated fairly and makes banks responsible for the suitability of products sold to the customer. But what happens when banks fail to redress grievances or mis-sell a bunch of third-party products? RBI has not prescribed any penalties for failure to comply with the charter.
After persistent questioning, Moneylife learns that each bank has been asked to chalk out its own policy for ensuring compliance with the charter. Only if banks fail to put in place a comprehensive policy, or adhere to it, will the central bank intervene. It is not clear in what way this would happen. However, as things stand, the consumer charter will remain a statement of good intent and it will probably be a long time before a bank customer can actually hope for fair treatment and swift grievance redress.