A lot is spoken these days about mis-selling of financial products by banks. Quite often, we hear from bank customers that they went to the bank to open a simple fixed deposit account but were convinced by bank officials to invest in insurance, mutual funds or equity-linked savings scheme promising attractive returns. There are instances where the customer wanted to invest in PPF but was convinced to invest in ELSS with the promise of higher returns.
Equally common are instances of home loan borrowers being sold, at times compelled to buy, expensive long-term insurance policies when all that is needed is term assurance to cover the loan amount where the premium amount is lower. Senior citizens are also enticed into investing their retirement savings in products that do not meet their financial needs.
All these are examples of mis-selling and are done under the garb of “need-based cross-selling”. There have been numerous instances where cross-selling has led to mis-selling and by the time the gullible customers realise that they have been misguided, it is too late. The ensuing redressal process can at times be tediously protracted and stressful.
At the outset we need to understand what is mis-selling of third-party products. According to Wikipedia, mis-selling is the deliberate, reckless or negligent sale of products or services in circumstances where the contract is either misrepresented or the product or service is unsuitable for the customer’s needs.
Mis-selling can have an adverse impact on how customers perceive the value and trust of their banks, which have long been known for their service, reliability and integrity.
A number of customer complaints about mis-selling are received by the Grievance Cell of banks and also Banking Ombud-sman and Insurance Ombudsman offices. Very often, customers do not ask questions due to their abiding trust in their bankers and get rushed into buying financial products that they do not know much about or are not suitable to their risk profile.
Till very recently, if a customer had bought an insurance policy or a mutual fund from a bank and had any grievances, he could go only to the insurance company or the mutual fund (MF) company or insurance Banking Ombudsman (BO) and not his banker.
Not any longer. Concerned over the spate of complaints received from various quarters, from July 1, 2017, the scope of the BO scheme has been widened to include deficiencies arising out of selling insurance, mutual fund and other third-party products by banks.
This move of RBI to protect customer interest can at least hold the banks responsible for any unfair selling practices and Caveat Venditor (the principle of seller beware) will prevail.
The Code of Bank’s Commitment to Customers mandates that banks are responsible for any person using their premises for selling or marketing third-party products on their behalf. The Charter of Customer Rights enshrines broad, overarching principles for protection of bank customers and enunciates Right to Suitability as one of the basic rights of bank customers. “The products offered should be appropriate to the needs of the customer and based on an assessment of the customer’s financial circumstances and understanding”. The bank will not compel him to purchase or subscribe to any third-party product as a quid pro quo.
While the regulators are doing their part to protect the interest of the bank customer, the onus still rests on the buyer of the financial product to protect himself against mis-selling by understanding the terms and conditions and the risks involved. Caveat Emptor — buyer beware still applies.
In conclusion, customers in their own interest should be aware of their rights and avoid falling prey to being sold unsuitable products by banks. They should have a good understanding of financial products and services offered by the banks before signing on the dotted line of the product.
(The author is Anand Aras, CEO of Banking Codes and Standards Board of India)