This can happen to you—bank customers beware. Lack of financial literacy can cost you big time as reputed banks target the gullible with money to spare. PMS, insurance, loans are pushed by relationship managers to make a killing, at your cost!

HSBC Bank took Ms Suchitra Krishnamoorthi, a well-known singer and actor, for a ride over a five year period by promising an extravagant assured return of 24% from mutual funds as well as insurance. Each time the customer complained about losses in her account, the standard reply was that the relationship manager has been fired and that the bank will make up for the losses with judicious investments. Needless to say, the losses were never made good. The one-way road for the customer was downhill. If a well-known celebrity could be cheated with such impunity, it is surely happening routinely with others.

It is a case of systematic looting and exploitation of emotionally vulnerable who had got Rs3.6 crore as part of a settlement in September 2006. The money was supposed to be the means of livelihood for herself and for her daughter. The bank used confidential information about the hefty deposit in her savings account and began to market its toxic services to her. Since bankers are seen as trustworthy, she believed that her relationship manager was advising her correctly.

The modus operandi for HSBC in this case has been a combination of toxic churning of the portfolio management system (2% entry load on every purchase made by it on behalf of client), insurance products promising 24% returns, insisting her on taking a loan instead of withdrawing funds without even disclosing that the client was entitled for a smart loan.

The end result after five years was Rs83 lakh—direct loss from investment, Rs29 lakh in commission to HSBC, Rs8 lakh (50% of investment) lost from an insurance policy, Rs10 lakh (again, 50% of investment) valuation decline in insurance policy still in force, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the Income Tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the bank.

When Suchitra wished to surrender her insurance policies, HSBC refused to act for her by contending that they no longer had any tie-up with Tata AIG and that it was not their business to get client’s money back that they had recommended in the first place.

Apart from the losses, the so-called customer service was pathetic after the relationship started getting sour. The bank was appallingly evasive and non cooperative even for basic requests such as furnishing of documents or revoking power of attorney for the investment portfolio. It took the bank four months and repeated requests to furnish inchoate standard forms that Suchitra had signed at the time of appointing HSBC as her portfolio manager. Moreover, the documentation was incomplete.  

According to Suchitra, “It took my chartered accountant six months to authenticate the figures of losses—as not only was the HSBC team adept at covering its paper trail. They also very conveniently refused/evaded furnishing me the documents to which I am legally entitled for over a year—giving me one silly excuse after another like mismatch of signature/officers being on leave, etc.”

She adds, “While I was warned that the legal system in India is such that the matter will drag on forever probably causing me further expenditure and loss of peace of mind and reputation, I was determined to see this through. It is my moral responsibility and a warning to other vulnerable targets—small investors like me should not get conned by aggressive MBA's in suits who are preying on their customers like sharks in the big bad ocean. All the while getting richer and richer while making us small gold fish go bust.”

Last year Moneylife Foundation had conducted a seminar with Ravi Subramanian, banker and author of three well-known books like “If God Was a Banker”, “I Bought the Monk’s Ferrari” and “Devil in Pinstripes”. According to him, “Banks and relationship managers often indulge in cross-selling to earn more revenues and therefore, the customer has to be more careful while dealing with them. Bankers become ‘bhayankar’ when they fail to deliver what they have promised and try to hard-sell products on which they earn more money to the gullible customers. A customer can protect himself from falling into the hands of mercenary bankers by being alert, vigilant and at the same time doing due diligence.”