The Financial Stability Report released by RBI has taken note of mis-selling in the wealth management division of banks. An issue which has been constantly been highlighted by Moneylife, needs to curbed with many checks and disclosures in place
Taking serious note of the mis-selling that occurs in wealth management and investment advisory services offered by banks, the Reserve Bank of India (RBI)'s Financial Stability Report released on 27 June 2013 says that it is in the process of reviewing its guidelines.
The RBI in its report says, “Grievances relating to mis-selling, whereby products that are unsuitable for a particular customer, either for commission-linked reasons or lack of knowledge, clarity regarding accountability between the product issuer and the advisor/portfolio manager, need to be addressed by improving consumer protection measures.”
It further says, “The issues have been widely debated in the inter-regulatory technical group of the FSDC Sub Committee and a review of the extant guidelines on wealth management services offered by banks is being carried out. The aspects on marketing and distribution of third party financial products by banks also need to be factored in while issuing comprehensive guidelines on Wealth Management Services by banks.”
Moneylife has for long been highlighting the mis-selling of these services with specific examples. However, the RBI had not responded until now. This was among the many issues taken up by Moneylife Foundation with RBI deputy governor, Dr KC Chakrabarty, at an Open House meeting in June 2013. In a recent cover story on such issues, (Read: Banks Vs Depositors) Moneylife pointed out how selling of insurance, mutual funds and equity advisory services by banks have affected customers, who do not know which regulator will redress their grievance. RBI ignores complaints about third-party products (some are not even regulated), while Securities & Exchange Board of India (SEBI) and Insurance Regulatory Development Authority (IRDA), both already poor at grievance redress, are even more reluctant to address complaints about mis-selling by banks.
Moneylife has highlighted several stories on mis-selling. A year ago we wrote about how HSBC Bank promised Suchitra Krishnamoorthi, a well-known singer and actor, extravagant assured return of 24% from mutual funds as well as insurance, but instead continuously churned her portfolio. (Read: HSBC loots Suchitra Krishnamoorthi after big promises of 24% returns). The case remains unresolved, with the bank brazenly continuing to blame Ms Krishnamoorthi for having signed papers.
In a similar case, another high net worth individual (HNI) based in London, found out abnormal churning of mutual funds in his portfolio that was managed by HSBC bank. Both are HNIs who were made to sign a power of attorney (POA) in favour of HSBC to handle their investments smartly. He too is in India and doing the rounds of all the regulators in the past week to try and figure out who will own up to the responsibility of regulating HSBC.
In another such case, 79-year old Mangelal Sharma was persuaded by IndusInd Bank officials to break his fixed deposit with the bank and invest in a mutual fund product saying it was a low-risk banking product. Moneylife’s aggressive stance on mis-selling by banks, and campaigning against this case led the Bank refunding the money back to Mr Sharma (Read: Mangelal Sharma gets his Rs7 lakh back—another Moneylife victory)
Unfortunately, in several such cases, banks tend to get away scot free because the consumer is conned into signing a number of documents based on misplaced trust in their bankers. For instance, when Mr Sharma approached the Banking Ombudsman for justice, his case was rejected because he had signed on the investment form. As per existing policy, the Banking Ombudsman would not get into the merits of an obviously wrong product, with a five-year lock-in product being sold to a 79-year old senior citizen. Similarly, when Ms Krishnamoorthi took her issue up with the Ombudsman, the bank replied stating that she had signed on all the letter of instructions (LoIs) to carry out the transactions in her account. The manner in which bank officials discharge their fiduciary duties was not even taken into account.
The RBI Financial Stability Report also mentions that, “The recently notified SEBI (Investment Advisers) Regulations, 2013, contain detailed norms for risk profiling and suitability, creation of a Separately Identifiable Department or Division (SIDD) for IAS, detailed disclosure to the clients including any conflicts of interest, redressal of investor grievances, etc. Such norms are expected to address mis-selling risks to a certain extent.” When SEBI had come up with the draft regulations in September 2011, we had mentioned that this idea of SEBI is nonsensical. (Read: Investment Advisor Regulation - II: How SEBI’s do-gooding can be easily undermined) How far this move would be effect we do not know as customers are after all known to sign on blank forms and signing without reading.
Reported by Jason Monteiro
Concerned over rising bad loans, bankers have started publishing names and photos of guarantors of defaulted loans as well in newspapers. However, there is no clarification on the selection criteria of either the defaulter or guarantor
Close on the heels of banks publishing photos of borrowers who have defaulted, the lenders have decided to give same treatment to guarantors of such defaulted loans too. However, there is no clarity about the selection criteria of such guarantor, who has provided guarantee to a borrower for loan.
Banks, mostly public sector lenders have decided to ‘name and shame’ the guarantors of such borrowers as well by publishing their photographs and other details in newspapers and at notice boards of bank branches and community centres.
Several state-run lenders are at the forefront of taking such measures. Those already making public the photographs and other details of loan defaulters include the country’s biggest lender State Bank of India (SBI), UCO Bank, Allahabad Bank, Indian Bank and Indian Overseas Bank (IOB).
On Tuesday, Allahabad Bank published photographs of two guarantors as well in the newspapers as part of a public notice for sale of two properties mortgaged for the loan. The borrower, a corporate entity, had failed to pay it dues and the total outstanding amount currently stands at over Rs365 crore.
SBI began publishing the pictures of its individual loan defaulters in March this year, while UCO Bank has also went public with the name, photograph and other details of a well – known industrialist for non-payment of loans by his company.
Even the Bangalore Municipal Corporation has not hesitated to use traditional drum-beaters to shame some of India’s best corporate brand names into paying up property taxes. In January this year, it collected Rs19 crore from the IT giant Wipro Ltd, which paid up but has contested the claim. It has also successfully targeted five-star hotels, such as Le Meridien and Ramada Hotel, for a few lakhs of rupees.
According to bankers, the photographs, names and addresses of the guarantors would be published in newspapers if the dues were not cleared within 15 day of the notice containing particulars of the original borrowers.
Earlier this month, finance minister P Chidambaram asked banks to focus on top defaulters and take action against them. He said, “You (bankers) focus on the top defaulters, as well as keep an eye on the top performing accounts... They are keeping a close watch on the top 30 non-performing accounts in each bank and action will be taken on the defaulters,”
Non-performing assets (NPAs) of banks have been on the rise for past several months due to slowdown in the economy.
The gross NPAs of some public sector banks, including State Bank of India and Punjab National Bank have crossed 4% of the total assets at the end of March 2013.
Gross NPAs of PSU banks have risen to Rs1.55 lakh crore as on December 2012 from Rs71,080 crore as on March 2011.
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