UK Sinha Under-rates Their Size and Influence
SEBI chairman UK Sinha’s most forthright...
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].
Gold and silver prices have crashed all over the world. This has confounded those who believed the endless allure of these metals, because pop-economists told them that global monetary easing is good for gold and silver. Indian savers will also be traumatised by the impact on gold loan companies and gold ETFs
On Friday it was a sharp drop. By Monday afternoon it has turned into an avalanche. Gold price crashed by as much by as 11.69% and silver prices by as much 6% on a single day on Monday, stunning those who have been led by pop-economists to believe that gold and silver prices are headed higher because of the endless injection of cash by the central banks. Gold collapsed to Rs26,250 per 10 grams on the MCX at its low today, to touch its lowest level in 15 months. The fall was 6% over Saturday’s close. Silver crashed by over 11% to Rs43,525 per kilogram on MCX. From a high of Rs27,925 on 13th April, gold has crashed by 11.7% and silver has slumped by as much as 17% from its high of Rs52,447 on 13th April. The daily charts of gold and silver show the extent of the rout. The intraday charts of the two metals show utter panic selling today.
What is going on? Gold has been always sought as an alternate investment option. And over the past few years the metal had touched new highs and stayed elevated. It is the only asset class in living memory that has gone up every year in the last decade. This was unsustainable.
The crash in the bullion market has come as a shock to investors who thought the metal as a hedge against inflation or even had the impression that gold prices would never fall, going by the rally the metal has witnessed in the last 12 years. The price of gold was substantially driven by speculation and now the sentiment for the metal has gone down, added with further rumours and speculation which has led to panic selling of the yellow metal.
Specifically about today’s panic selling, there were rumours that some central banks (Cyprus) were selling gold. The other explanation is that since the economic catastrophe that gold bugs have been expecting have not happened, there is no need to hold gold as a hedge.
What fuelled the decline in gold prices further was the Shanghai Gold Exchange announcing that following the tumbling precious metal prices and to limit down drop in early trading, it may raise trading margins for its gold and silver forward contracts. The exchange announced that should prices not recover by the end of the trading day (which they didn't), trading margins for the gold forward contract will be raised to 12%, while margins for the silver forward contract will be hiked to 15%, the exchange said in a statement on its website.
How will this affect Indian savers? Those who have held gold for use should not be perturbed. Those who have bought gold as an investment or speculation would now ask around about the ‘fundamentals’ of gold. Meanwhile, it is bad news for the two new products/businesses that came up in the up in the past few years riding on the enormous gold rally: gold loan companies sprouting and mutual funds selling gold exchange-traded funds (ETFs). Moneylife in the past has argued that the business model of gold loan companies is flawed. Not surprisingly, the shares prices of these companies have crashed even further. Mutual funds have pushed gold ETFs hard, exploiting the Indian belief that gold always goes up. They would be hard put to justify the severe underperformance of ETFs over the past two years.