A Moneylife Foundation survey reveals gross mis-selling by banks. Over 83% of the participants were coerced to buy insurance
All regulators repeatedly emphasise that intermediaries such as a distributors and agents should ensure that they sell only products that are suitable to each of their customers. Bankers, wealth managers and advisers are supposed to check their clients’ need before recommending a specific product. This, however, is not followed in practice. Over the past few years, banks have emerged as the biggest distributors of financial products in urban areas. They are large institutions with sophisticated processes. However, how do they treat their own customers? Our survey of over 1,000 Moneylife members reveals gross mis-selling by banks. Below were the key findings of the survey:
• Nearly 90% of people surveyed believe they have been mis-sold a financial product or service.
• Over 80% of the respondents believe that “banks should not sell third-party products because they lack accountability.”
• Of these, 75% stated that they were sold credit cards that they did not need/want.
• As many as 66% complained about being mis-sold ULIPs.
• Nearly 64% of the participants said they did not find the product suitable for their needs.
• A shocking 50% reported that their bank forced them to buy third-party products.
• Predictably, 83% of the people surveyed said they were coerced into buying insurance. In effect, it is by far the most mis-sold product. This was followed by mutual funds (35%) and 3-in-1 demat and trading accounts (21%).
• Nearly 68% of the respondents say that banks are aggressive about selling group products, especially at the time of negotiating a loan.
• As many as 70% of the respondents say that banks do not have an effective grievance redress system and 69% believe that banks will not take responsibility for the quality of products that they recommend.
Moneylife continues to receive complaints about brazen mis-selling, especially to senior citizens. The extent of mis-selling of ULIPs has reduced over the years, but coercive sales continue. So be wary about bankers selling insurance. Nearly 50% of the respondents to our survey reported not being told about the terms and conditions of the product/s. One has to be on guard.
The RBI wants to act on the principle that bank customers need to be treated fairly. On 25 May 2015, RBI governor Dr Raghuram Rajan called a meeting with a few consumer activists and commentators to seek feedback specifically on the issue of mis-selling by banks. Moneylife Foundation, which was able to present its views at this meeting, decided to seek specific customer feedback through an objective online survey of members.
Over 1,100 people responded to the survey. Although the sample is skewed because it represents urban (50% of the respondents are from the six top metros plus Pune and Surat), educated, reasonably affluent persons (65% earned over Rs5 lakh per annum) who understand English, this factor seems adequately balanced by the fact that this group is the primary target for sale of third-party products. Even discounting for the fact that people who have had issues with banks may be more inclined to fill out the survey, it provides extensive, organised feedback on the ‘suitability’ factor that holds many lessons not only for the regulator but for consumers as well, if not for bankers.
Therefore, the onus of due diligence for assessing product suitability is on the service-provider. Despite the RBI mandating the ‘Right to Suitability’ as one of the rights of bank customers, do banks diligently check product suitability before selling a product? In our Cover Story here
, we highlight several such cases of mis-selling and the ways to protect your savings from the hard-selling of banks.
In December 2014, the RBI published a five-point ‘Charter of Customer Rights’ and asked banks to operationalise it ‘in a time-bound manner’. The Charter asks banks to ensure fair treatment of consumers without discrimination; it requires transparency and honest dealing in spelling out costs and risks associated with products; it makes banks take responsibility for the suitability of the products it sells.