Will SEBI-RBI Protect this Investor?
I n direct contrast to SEBI’s enthusiasm in the attempted-fraud, is the case of ML Sharma, a victim of gross mis-selling by his own bank. Mr Sharma’s manager at IndusInd Bank (Delhi) persuaded the 79-year old to invest Rs4 lakh in the product of a mutual fund house, DWS, which he was told was the Bank’s ‘Development of Wealth Scheme’—a fixed deposit. Mr Sharma was persuaded to break a fixed deposit, by waiving charges and transfer the money to this scheme. The manager went to his house to complete the formalities and helpfully offered to fill in the form details himself. Mr Sharma was delighted at the ‘service’ and fell for it. After all, most people trust their bankers implicitly. As our columnist Vivek Sharma has written, the DWS Hybrid Fixed Term Fund Series 10 Growth is a fixed term debt plan with no redemption for five years and only a market exit where liquidity is poor to non-existent.
Mr Sharma realised that he was cheated when he received his first statement. He complained to the Bank, which ignored him. He approached the banking ombudsman, who summarily dismissed the complaint because Mr Sharma had signed the investment document.
Now, here are a few important issues. Mis-selling of insurance and mutual fund products by bank managers is rampant and the Reserve Bank of India (RBI) is fully in the know of this practice. But this is a mutual fund, so SEBI’s standards ought to apply. Back in 2008, SEBI issued rules said that stockbrokers “owe their clients a duty to provide suitable investment advice in the best interest of the clients.” Independent financial advisors also have to ensure that people get the right advice, even if they don’t get to earn commissions. Only bank relationship managers continue to indulge in brazen mis-selling and con people into buying mutual funds, unit-linked insurance products and hybrid-derivative products on the promise of higher returns. SEBI, RBI and the insurance regulator have done nothing to prevent such cheating. People, like Mr Sharma, are hapless victims. Mr Sharma says, “I am a very old man with an ailing wife” and as a retiree from the private sector he lives on interest from savings. At the age of 79, he does not need a locked-in mutual fund scheme with uncertain returns. He is completely bewildered and shattered. His only mistake was to trust his banker, only to be cheated.
This targeted mis-selling to their own customers, that too hapless senior citizens, is far worse than breaking all the rules to help launder black money through the banking system. When the ombudsman dismisses such complaints without going into details, it is signalling to the banking industry that it is alright to pick the pockets of their own customers through deceit. More damagingly, it is telling people never to trust their bankers.
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When a banker comes to your home, exploits your trust and dupes you, he is called a bankster. Why doesn’t such systematic criminal exploitation of hapless depositors move the government and the banking regulator? This 79-year old has resorted to Gandhigiri to get justice
In the past couple of days 79-year old Mangelal Sharma goes to his bank (IndusInd Bank, Preet Vihar Branch, New Delhi) wearing a specially made T-shirt. It carries his photograph and says “BEWARE IndusInd Bank is a cheat. It has cheated me and may cheat you”. He says there was a lot of commotion when he first walked in and some said that they too had been cheated by the bank. On Saturday he wore the T-shirt and danced at the branch singing “Kya mil gaya sirkar toomhen meri FD (fixed deposit) toodake, mujhe mutual fund mein fansa ke, mujhe choona lagakey”. This parody of this song from the film Kissa Kursi Ka has Mr Sharma asking the bank what it achieved by entrapping him to invest in a mutual fund.
The story behind this protest will make you furious. It is about how banks have turned into banksters and send out armies of managers to entrap, con and lure trusting account holders to invest their saving in instruments that earn them a high return. ML Sharma, like the majority of senior citizens in India, has his money in fixed deposits. The risks are low and the interest income provides him with the income security someone at his age and in his circumstance requires. He is 79. His wife, at over 70 years, has recently undergone second knee replacement surgery, after the first operation in October 2012 was unsuccessful. He is, in his own words, an “old man with an ailing wife”. Yet, his bank, IndusInd Bank, thought it fit to sell him a mutual fund product with a lock-in period of five years by persuading him to withdraw his fixed deposit of no less than Rs7 lakh and invest it in what they told him would simply be another low-risk banking product. This is no doubt a shocking example of how far banks will go to earn commissions. Mr Sharma approached the Banking Ombudsman for justice, but his case was rejected outright because Mr Sharma had signed the investment form. Apparently nothing else matter. This gives banks and their agents the license to lie and cheat any of us out of our savings so long as the signature on the form is ours.
Yet, this 79-year old hasn’t given up. In his reply to the banking ombudsman, after his case was dismissed, Mr Sharma has written, “I beg to knock on your door for justice again. Sir, I am totally unable and devoid of energy to take legal action in a court and count only on your sense of justice and mercy. Even a judge considers the relevant circumstances under which a person commits a murder to arrive at the correct judgment. Just the fact that I had signed the investment documents is insufficient. It must also be considered under what circumstances I had signed the form.”
It is very apparent what transpired. Mr Sharma says, “I never approached the bank for investment advice. Jyotirmay Sharma, the branch manager, came to my house, along with another officer, Mr Kesharwani. Yet, the bank still claims that they came to my house on my request. That they came to my residence to tender advice on my seeking is unthinkable. If I had sought any advice, the branch was the proper place, not my residence. They had gone on a hunting spree for a gullible person like me for earning profit for the bank.”
While at Mr Sharma’s house, the bank representatives found out that he had no money to invest. Knowing that he would object to breaking his fixed deposit, as he would have to pay a penalty on premature withdrawal, they offered to waive the premature withdrawal fees. They then proceeded to tell him about a cooked up product name—Development of Wealth Scheme or DWS, which they said was also offered by IndusInd Bank. What they did, in fact, sell him was DWS Hybrid Fixed Term Fund Series 10 Growth, which is sold by Deutsche Asset Management India Pvt Ltd (DWS).
Mr Sharma says, “They did waive the premature withdrawal fees. But at no point was I told that I was investing in a mutual fund. I was told it would be a scheme of the bank itself. They told me I could quit the scheme at any time and that the proceeds would be credited in my savings account the very next day. I did not think of a mutual fund or lock-in period at all.”
At the time, Mr Sharma appreciated the service of the bank employees. The service, of course, included filling up the form as well. All Mr Sharma needed to do was sign the form. Today he regrets trusting the IndusInd bank employees. Mr Sharma says, “I had signed the cheque in the name of DWS and the rest was written by the bank personnel. Had I written full name of the mutual fund, I would have known. I am ready to bear the fees of a handwriting expert for examination. I am even ready to pay a penalty of Rs1 lakh if it is proved that the full name of the scheme on the cheque is in my handwriting.”
It was only when an email, sent by IndusInd Bank on 11 October 2012, was received by Mr Sharma that he realized what had been done to him. He said, “I raised an objection the very same day I received the email. Had I known the terms and conditions of this investment earlier, I wouldn’t have raised the objection immediately after receiving the email.”
Given that it was a mutual fund that was sold to Mr Sharma, various standards laid down by Securities and Exchange Board of India (SEBI) should apply. In 2008, SEBI issued rules that said that stockbrokers “owe their clients a duty to provide suitable investment advice in the best interest of the clients”. Very soon financial advisors will also have to ensure that people get appropriate advice. But bank relationship managers continue to indulge in brazen misselling and con people into buying mutual funds, unit-linked insurance products and hybrid-derivative products on the promise of higher returns.
I wrote to the RBI governor Dr Subbarao, SEBI chairman UK Sinha, RBI deputy governor Dr KC Chakrabarty and the revenue secretary Sumit Bose about Mr Sharma’s case on 12th April. As usual, they have maintained a complete silence. To us, the deliberate cheating of senior citizens and women—who are the biggest targets for banksters—is a bigger problem the same bankers laying out a red carpet for those with political black money to be laundered.
For us, this is not just another article, especially since the depositor/investor himself is making all efforts to get justice. Moneylife Foundation, the voice of savers, wants to start a campaign to stop such criminal malpractices. Here is what we propose. We want to collate all such cases of mis-selling by banks and represent to the regulators to stop the abuse. We need as many examples as possible.
Call to action
If you know of similar cases of mis-selling by banksters, please write to us with details at [email protected].