Dvara Research BlogDvara Research Blog
Dvara Research Blog
Doorway to Financial Access
  • Home
  • Our Work
  • Themes
  • Subscribe
    • Email Subscription
    • Feed
  • Contact Us
Menu back  

Shining the light on mis-selling in Indian banking

May 1, 2019Leave a commentNews Viewed : 1416

By Bindu Ananth & Deepti George, Dvara Research

Ask any retail consumer of financial services and you will find at least one instance where she or someone she knows experienced an act of mis-selling by a bank representative. Until recently, these experiences were not getting formally captured in the regulatory radar. A 2017 amendment to the RBI Banking Ombudsman Scheme seeks to change this. This amendment widened the scope of the scheme to include violations of the RBI guidelines on para-banking activities through improper, unsuitable sale of third-party financial products. While it is unclear why such a category does not include unsuitable sale of banks’ own products, for the first time there is acknowledgement that banks can do harm with respect to their selling practices. It, however, severely underestimates the magnitude of the same.

RBI’s Annual Report of the Banking Ombudsman Scheme released on April 24, 2019 states that mis-selling has constituted 0.4% of complaints under the Ombudsman. This is about 650 people. It is hard to reconcile this with experiences such as rampant sale of Ulips that resulted in losses of ₹1.5 trillion to investors during a seven-year period in 2004-2012 (Halan et al, 2013).

The largest number of complaints received for the year were under the categories of non-observance of fair practices code (22.1%), ATM and debit card issues (15.1%), credit card issues (7.7%), failure to meet commitments (6.8%), and mobile and electronic banking (5.2%). One issue with these categories is that it does not provide information about where in the entire customer engagement life-cycle did the consumer experience fail. We would be interested in parsing out for instance, misleading advertisements from data privacy violations. Each of these should elicit regulatory responses. With respect to three closely related categories namely “non-observance of fair practice code”, “non-adherence to BCSBI Codes” and “failure to meet commitment”, there are overlaps that could be avoided. It is also symptomatic of a bifurcated regime for conduct that the RBI has operationalised and oversees directly and or through delegated bodies such as the BCSBI. On the topic of mis-selling, the BCSBI Code of Banks’ Commitment to Customers contains an obligation to ensure suitability, although it is applied only to banks’ sales of third-party products. This keeps banks’ sales of their own products like loans and term deposits outside the ambit of such a requirement. This is an inherent contradiction given that retail customers view all products sold through the banking channel as the same. Hence this arrangement offers uneven protection.

Notwithstanding these concerns, RBI’s inclusion of a category on mis-selling is definitely a start that should evolve in a shared understanding of what might constitute mis-sale. While today’s fair practices codes and the RBI’s Charter of Customer Rights capture some language around assessing suitability and ensuring a right to suitable products and advice, more can be done.

We argue that suitability, or at least a reasonable minimum benchmark of ‘avoiding any sale that is unsuitable for the customer’, is something that all service providers must aspire to incorporate. This means that at the very minimum, providers demonstrate policies and processes that articulate how they plan to meet this minimum benchmark.

For instance, before selling an investment product, the provider must have conducted adequate due diligence about the customer’s financial situation, risk profile and capacity, that the transaction meets the customer’s investment objectives. Such due diligence must not be based solely on the risk appetite of the customer. If the regulator can clarify these objectives and how it intends to measure performance against these objectives through a significantly upgraded supervisory process that looks at demonstrated conduct of institutions, mis-selling will become tremendously easier to identify and prevent.

To this end, a re-framing of complaint categories would help towards better data capture. Mis-selling is a broad theme that needs to capture categories such as failure to act in client’s best interest, inappropriate or wrong advice, failure to consider customer needs and circumstances, and poor risk-profiling of customer. This is the need of the hour since armed with access to new forms of technologies, providers in India are set to bring millions of “new-to-bank” consumers under the fold of formal financial services. Without a sustained focus by regulators on mis-sale, we put at risk confidence of the retail customers.

This article first appeared in Livemint.

Share Via :Tweet about this on Twitter
Twitter
Share on Facebook
Facebook
Share on LinkedIn
Linkedin
Email this to someone
email
mis-salemis-sellingSuitability
Leave Comment

Cancel reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

eighteen − five =

clear formSubmit

Related posts
Are we protected enough?
February 4, 2019
Differentiation in banking models is a must to drive competition
December 4, 2018
Is it time to introduce wholesale banks in India?
October 26, 2018
India’s Findex data: Reasons behind non-usage phenomenon even after widespread financial services
October 24, 2018
Banks must transmit rates for fruitful financial inclusion
October 12, 2018
Is there bang for the Mudra buck?
September 7, 2018
Search
Recent Comments
  • Prasanna Srinivasan on Care through competition: The case of the Netherlands: “This made interesting and informative reading. Thank you. Inevitably, the mind ran a comparison with the Indian context even while…”
  • Misha Sharma on Direct Benefit Transfers in Assam, Chhattisgarh, and Andhra Pradesh: Introducing the Dvara-Haqdarshak Study on Exclusion in Government to Person Payments: “Great post, Aarushi. It will also be interesting to document the challenges faced in accessing these transfers and experiences with…”
  • Misha Sharma on What is Social Protection?: “Thanks for writing this, Anupama. A much needed piece and looking forward to the second post in this series. It…”
Subscribe and Follow Us

Popular Post

Popular Post
  • ‘Buy Now, Pay Later’: What is it, and how does it affect customer protection?
    May 5, 2022
  • Call for Papers: Field Workshop on Household Finance 25th June, 2022
    May 4, 2022
  • Care through competition: The case of the Netherlands
    April 28, 2022

Categories

Categories
  • Channels(88)
  • Consumer Protection(33)
  • Events(30)
  • Featured(42)
  • Field Reports(6)
  • From the field(9)
  • General(22)
  • Guest(30)
  • Household Research(75)
  • Long Term Debt Markets(9)
  • News(45)
  • Origination(30)
  • Products(42)
  • Regulation(112)
  • Research(254)
  • Risk Aggregation(26)
  • Risk transmission(63)
  • Small Cities(21)
  • Technology(25)
  • Uncategorized(105)
  • Unemployment Support(5)

Archives

Archives
  • May 2022 (2)
  • April 2022 (4)
  • March 2022 (2)
  • February 2022 (3)
  • January 2022 (3)
  • December 2021 (4)
  • November 2021 (6)
  • October 2021 (4)
  • September 2021 (4)
  • August 2021 (6)
  • July 2021 (6)
  • June 2021 (10)
  • May 2021 (7)
  • April 2021 (9)
  • March 2021 (10)
  • February 2021 (8)
  • January 2021 (4)
  • December 2020 (7)
  • November 2020 (7)
  • October 2020 (11)
  • September 2020 (10)
  • August 2020 (12)
  • July 2020 (3)
  • June 2020 (5)
  • May 2020 (8)
  • April 2020 (4)
  • March 2020 (8)
  • February 2020 (3)
  • January 2020 (9)
  • December 2019 (4)
  • November 2019 (3)
  • October 2019 (7)
  • September 2019 (3)
  • August 2019 (2)
  • July 2019 (4)
  • June 2019 (4)
  • May 2019 (4)
  • April 2019 (7)
  • March 2019 (2)
  • February 2019 (3)
  • January 2019 (3)
  • December 2018 (5)
  • November 2018 (2)
  • October 2018 (5)
  • September 2018 (2)
  • August 2018 (2)
  • July 2018 (2)
  • June 2018 (2)
  • May 2018 (1)
  • April 2018 (1)
  • March 2018 (5)
  • February 2018 (2)
  • January 2018 (2)
  • December 2017 (5)
  • November 2017 (4)
  • October 2017 (3)
  • September 2017 (1)
  • August 2017 (3)
  • July 2017 (1)
  • June 2017 (3)
  • May 2017 (4)
  • April 2017 (3)
  • March 2017 (4)
  • February 2017 (3)
  • January 2017 (6)
  • December 2016 (5)
  • November 2016 (2)
  • October 2016 (3)
  • September 2016 (5)
  • August 2016 (4)
  • July 2016 (4)
  • June 2016 (8)
  • May 2016 (4)
  • April 2016 (5)
  • March 2016 (4)
  • February 2016 (3)
  • January 2016 (3)
  • December 2015 (3)
  • November 2015 (1)
  • October 2015 (2)
  • September 2015 (3)
  • August 2015 (5)
  • July 2015 (3)
  • June 2015 (3)
  • May 2015 (3)
  • April 2015 (2)
  • March 2015 (3)
  • February 2015 (1)
  • January 2015 (1)
  • December 2014 (5)
  • November 2014 (4)
  • October 2014 (3)
  • September 2014 (4)
  • August 2014 (4)
  • July 2014 (4)
  • June 2014 (8)
  • May 2014 (1)
  • April 2014 (4)
  • March 2014 (5)
  • February 2014 (6)
  • January 2014 (8)
  • December 2013 (7)
  • November 2013 (8)
  • October 2013 (7)
  • September 2013 (7)
  • August 2013 (5)
  • July 2013 (6)
  • June 2013 (7)
  • May 2013 (6)
  • April 2013 (8)
  • March 2013 (9)
  • February 2013 (6)
  • January 2013 (9)
  • December 2012 (8)
  • November 2012 (7)
  • October 2012 (5)
  • September 2012 (5)
  • August 2012 (5)
  • July 2012 (7)
  • June 2012 (4)
  • May 2012 (6)
  • April 2012 (4)
  • March 2012 (7)
  • February 2012 (6)
  • January 2012 (8)
  • December 2011 (8)
  • November 2011 (7)
  • October 2011 (8)
  • September 2011 (7)
  • August 2011 (3)
  • July 2011 (6)
  • June 2011 (11)
  • May 2011 (8)
  • April 2011 (9)
  • March 2011 (13)
  • February 2011 (10)
  • January 2011 (8)
  • December 2010 (10)
  • November 2010 (10)
  • October 2010 (10)
  • September 2010 (7)
  • August 2010 (13)
  • July 2010 (10)
  • June 2010 (6)
  • May 2010 (13)
  • April 2010 (7)
  • March 2010 (10)
  • February 2010 (5)
  • January 2010 (4)
  • December 2009 (3)
  • November 2009 (1)
  • October 2009 (6)
  • August 2009 (1)
  • July 2009 (2)
  • June 2009 (1)
  • May 2009 (1)
  • April 2009 (1)
  • March 2009 (1)
Share Via :Tweet about this on Twitter
Twitter
Share on Facebook
Facebook
Share on LinkedIn
Linkedin
Email this to someone
email
Site Map

www.dvara.com