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Have You Been Mis-Sold Financial Products By Banks? Here's Help... - Outside View by PersonalFN

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Have You Been Mis-Sold Financial Products By Banks? Here's Help...
Aug 31, 2017

While a majority of the Indian banking industry is plagued with asset quality woes, a few of them continue to report good quarterly numbers. If you follow their press releases and financial disclosures, they record a steady rise in their "fee income" quarter after quarter. There are no disputes about their conservative lending practices, which help them contain bad loans, however careful analysis of their "fee income" component explains why these banks are ahead in the race.

Unsurprisingly, the most straightforward answer is-because they mis-sell.

This is done deliberately or under the pressure of chasing targets. Their staff resorts to mis-selling banking and third-party financial products. Until now, the top products on the list of "products to be sold aggressively" were third-party products such as insurance policies, mutual fund schemes, and pensions schemes among others.

Here are two reasons why:

  1. These generated high commission income
  2. Banks were unaccountable for mis-selling.

Believe it or not, until now seeking redressal from banking ombudsman on cases of mis-selling was close to impossible.

It's no wonder then that banks had a free run so far. If your bank gives you a tag of a "preferred customer", tread with a caution. Banks which turn a blind eye to this malpractice (mis-selling), target this category of their customer base first. There have been instances in the past where banks have sold insurance products to people nearing their retirement. And, you would meet many people whom banks sold sector and thematic funds when they didn't even know about equity diversified funds and the risks associated with them.

People seeking justice were forced to appeal to mutual funds or insurance companies, who in turn were reluctant to act against their "trade partners"- the banks. And the documents signed by customers (without reading them, by trusting the word of a relationship manager) worked against them.

Recently, the RBI amended the Banking Ombudsman Scheme 2006. As a part of this, it modified the grounds for lodging a complaint against banks with the Banking Ombudsman. This includes non-adherence to the Reserve Bank guidelines on para-banking activities such as the sale of insurance, mutual funds, and other third party investment products by banks.

The complaint can be filed for:

  • Improper, unsuitable sale of third party financial products
  • Non-transparency or lack of adequate transparency in sale
  • Non-disclosure of grievance redressal mechanism available
  • Delay or refusal to facilitate after-sales service by banks

As per the amended rules, the ombudsman can now levy a penalty of upto Rs 20 lakh (up from Rs 10 lakh earlier) on banks violating guidelines. Moreover, the redressal ombudsman can now award a compensation of upto Rs 1 lakh to the bank's customers for loss of time, mental trauma, and expenses incurred.

What should you do if a bank has mis-sold you any product?

  • First, approach the grievance redressal department of the concerned bank and wait patiently wait for 30 days. Please maintain all documentary evidence of having contacted the office and seek acknowledgements wherever possible.
  • If the bank fails to offer you any satisfactory solution, you may approach the banking ombudsman. You can simply write a letter or even send an email with the primary evidence you have against the bank. There are 20 ombudsman offices in India that can register your complaints without charging you a fee.
  • You also have an option of approaching consumer courts directly. But it's better not to skip any channel of redressal. That makes your case stronger.

Now banks must think twice before selling any product (especially, the third party products). And, the implementation of RBI's recent amendments still remains the key. Speedy delivery of justice will be the real game-changer.

Wake up banks, no easy way out for you.

At PersonalFN we follow high fiduciary standards. We put our clients/investors interest before our own and provide advice/ recommendations with enough care and prudence, much as how we would adopt while managing our own money. Our approach is unbiased, independent, backed by solid investment research, and based on thorough need-based analysis, whereby people can achieve their envisioned financial goals.

Wish to achieve your financial goals? Sign up for PersonalFN's Financial Planning service today!

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

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