As these examples from Moneylife Foundation’s Helpline show, the consumer has little chance of being treated fairly by companies, regulators and intermediaries

Mr Mallick from Sambalpur in Orissa runs an NGO. He has 17 insurance policies, sold to him by eight banks through their Bankassurance partners, with large premiums. He claims to have borrowed funds from various banks for a project (which we gather involves lending to the rural poor like a banking correspondent) and was persuaded to buy insurance policies. Since Mr Mallick’s English is poor, it is not clear if there was coercion; he alleges ‘gross mis-selling’.

In most cases, he was not able to pay anything after the first premium. The banks involved in the mis-selling include Union Bank of India (sold him SUD Life Insurance), Punjab National Bank (sold him Metlife India Insurance), HDFC Bank (sold him three policies of HDFC Standard Life), Axis Bank (Bajaj Alliance Life Insurance), Oriental Bank of Commerce (Canara HSBC Life Insurance), Karnataka Bank (two policies of Aviva Life Insurance), IDBI Bank (two policies of IDBI Federal Life Insurance Co) and ICICI Bank (five policies of ICICI Pru Life Insurance). There is also a TATA AIG policy.

The premium figures he refers to are so huge, that I don’t want to mention them here them without looking at the policy documents. Did he buy policies to get loans? A State Bank of India official has sent me a list of bankers who coerce SME borrowers to buy insurance policies simply to process loans.

The story is repeated at all nationalised banks, because the perks for such sales include foreign junkets, commissions, conveyance and no transfers. And this is happening even at the level of chief general managers!

Mr Mallick is in a financial mess. Banks have collected their commissions and the insurers are foreclosing the policies because he can’t pay. Mr Mallick is either completely financially illiterate, or, as he says, a victim of ‘gross mis-selling’. Unfortunately, at present, RBI’s regulatory infrastructure has absolutely no sympathy for people like Mr Mallick. If he writes to RBI’s banking ombudsman (BO), his case will be dismissed without even the right to appeal, as the BO had done in Suchitra Krishnamoorthi’s case and those of countless others. All that the BO will ask is whether or not he had signed the insurance documents. If the answer is yes, the case is dismissed.

The real question is: Why would anyone, in his right senses, buy 17 insurance policies and commit to the payment of such high premiums? We believe he was made false promises by his bankers, taking advantage of his financial illiteracy. Like Suchitra Krishnamoothi, he too made the mistake of trusting his bankers and did not suspect that they would mislead him.

Mr Mallick is not alone. There is Mr Rakshit, a 74-year old marine engineer, who is HSBC’s customer since 1963. His funds with the Bank exceeded Rs72 lakh; a big chunk was invested in mutual funds, under the advice of a fund manager. After this ‘advice’ led to a Rs25-lakh loss in 2010, he asked that the money be invested in safer fixed deposits. But that led to the real loot.

Mr Rakshit was apparently persuaded to write cheques totalling Rs44 lakh in the name of Sarogi Sales Corporation, a firm belonging to his relationship manager’s father. Another Rs11.5 lakh went to the relationship manager’s mother. He was further conned into transferring a flat to the relationship manager’s family, complete with registration deed (the family claims it was under the guise of a tenancy deed).

Mr Rakshit’s family approached RBI for help, but HSBC neatly shifted the onus of explaining the weird transactions on to the senior citizen and termed it a private matter between the two. Why would a senior citizen transfer money and assets to his bank manager? Shouldn’t the Bank or the employee explain? But RBI does not seem to be pushing HSBC hard enough probably because there was no NGO to keep up the pressure. The Rakshits have filed a civil and criminal case in Kolkata and, given our slow judicial system, it is advantage HSBC at the moment.
 
Then there is professor Tiwari from Guwahati who has written to us about being ‘mis-sold’ 21 policies by HDFC Life, Reliance Life Insurance and Birla Sunlife. Thanks to the efforts of Moneylife Foundation’s Insurance Helpline, and our expert Raj Pradhan, Mr Tiwari got back Rs5.1 lakh from Reliance Life Insurance and HDFC Life Insurance.

We are now attempting to get a more recalcitrant Birla Sunlife, which has sold him insurance in identical circumstances, to refund his money. Again, why would a man need 21 insurance policies? He was clearly made to believe he was buying an investment product. Mr Tiwari of Guwahati heard about resource-crunched, Moneylife Foundation through Uday Dhoot and Rahul Agarwal, two insurance intermediaries.

They are members of the Council for Financial Planners (COFP), one of the many bodies floated by financial intermediaries to push their agenda. We assume, in good faith, that
Mr Dhoot and Mr Agarwal, referred Mr Tiwari to Moneylife Foundation only after failing to get him a refund themselves. Both are at pains to say that Mr Tiwari is not their client, but won’t say who sold him 21 insurance policies.

Now here is the irony. While Mr Dhoot and Mr Agarwal got Moneylife Foundation working hard for Mr Tiwari’s refund, they were themselves busy with a COFP ‘convention’ fully funded by top mutual fund companies of the very same groups that ‘mis sold’ the policies—Birla Sunlife, HDFC Mutual Fund and Reliance Mutual Fund—at a five-star venue in Bengaluru.

Since the market regulator mandates mutual funds to spend a chunk of money on enhancing ‘financial literacy’, much of this spending goes for lavish conventions by financial intermediaries rather than consumers of financial services who need the literacy effort.

In fact, there is hardly any financial support to those involved in real advocacy, grievance redress and education efforts, because activist organisations hurt the interest of these financial service providers. Regulators, as well as the financial services industry, are fully aware of this hypocrisy; but large sums of money continue to be funnelled into gratification efforts in the name of promoting financial literacy.

Moneylife Foundation took up the issue of mis-selling of third-party financial products with RBI governor, Dr Raghuram Rajan. We are most upbeat that Dr Rajan, once he applies his mind to the issue, will begin to see how people’s finances are decimated by bankers who prey on their ‘trust’.

We are especially heartened by the speed with which he has directed banks not to levy penalties for failure to maintain minimum balances on inoperative accounts. He has also implemented the long-pending demand to scrap foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, through a directive.

At the time of our meeting, banks and intermediaries seem to have made the case that an outright ban on sale of third-party products would cause ‘the pendulum to swing too far’ against banks.

He was also under the impression that RBI meticulously studies thousands of complaints that it receives and acts in the interest of consumers. The truth is that the pendulum is stuck at the other end and the global move towards treating customers fairly has not gone beyond lip-service in India.

Who better to endorse this than Dr KC Chakrabarty, the former deputy governor, who never failed to say that it took years to implement even obvious decisions in India? Personally, I see the 6th and 7th May directives as a signal that Dr Rajan is beginning to take a hard look at how customers are treated.

RBI is focused on financial inclusion, but without a clear consumer protection framework which spells out accountability and punishment. As a result, every effort to bring in new customers will only lead to more disenchantment.

Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]