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Mis-selling: Banker's dozen
Moneylife Digital Team

Mis-selling by banks is sparing no one

There was a time when, a banker's word was a banker's bond. Bankers were modest, careful and decent people and customers could entrust their savings to them. A fiduciary relationship was strictly followed and the clients' best interests were safeguarded. However, things have changed rapidly over the years, especially after liberalisation of the Indian economy which ushered in more private banks with a sharp focus on the bottomline, many new products (some harmful, some irrelevant), accompanied by a host of shady practices. With strong emphasis on the commission-model for generating revenues, there is now pressure among bankers to meet stiff targets. Banks moved from a simple client-centric model to a more product-centric model. By concealing the fine print which contain the most important details of a product, bankers were able to cheat and fleece customers. Bankers were able to leverage the so called 'trust' to resort to blatant mis-selling, nothing more.

Take a recent example where HSBC Bank looted even a celebrity like Suchitra Krishnamoorthi. The Bank used confidential information about the Rs3.6 crore deposits in her savings account and began to market its toxic services to her. HSBC force fed her a combination of toxic churning of the portfolio management system (PMS), insurance products 'promising' 24% returns, and pushed her into getting loans instead of withdrawing funds, without even disclosing that she was entitled to a smart loan. The end result: a direct loss of Rs83 lakh 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."

Another striking example comes from the well-known HDFC Bank, where a 71 year-old customer, went to withdraw money. A mere act of just withdrawing money culminated, through hard sales pitch, into the sale of a ULIP (unit-linked insurance plan), that too issued in his wife's name, requiring a whopping Rs50,000 per year as insurance, with a minimum investment period of five years. The Bank's teller, doubling up as a hustling salesman, managed to seal the deal while concealing the finedetails.

The horror stories don't stop. A 74-year old man was sold an ICICI Prudential LifeStage Pension policy, without life insurance, by his bank relationship manager. Firstly, why would banks sell an annuity policy to a man who is already over 70 years old? Secondly, he suffered an 8% loss while surrendering the policy, and another 8% that would have accrued in a fixed deposit with compounded returns.

Bob Hope, the famous American comedian, once remarked, A bank is a place that will lend you money if you can prove you don't need it." It is sad to see that our private banks have become not just unsafe but are full of charlatans peddling dangerous products and forcing them down the customers' throats.

In the light of the financial crisis in America and the rampant mis-selling by banks in India, a new term called 'banker's dozen' was coined. A baker's dozen is when the customer receives 13 loaves of bread for the price of 12. However, a banker's dozen means that the customer receives 11 products for the price of 12. Maybe not even 11, just one! From being noble and trustworthy people, bankers have become bhayankar, as banker and author Ravi Subramanian says.

V.ANANTTHARAMAKRISHNAN
FINANCIAL PLANNER

(EX-STATE BANK OF INDIA)

PHONE:044-22246187
CELL:9381064887

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