by

Rajesh Goyal 

In October 2012 I have written an article under the heading "Banks  Must  STOP  Selling Gold Coins, Mutual Funds, Mediclaim Insurance etc."   A lot of readers agreed with my views but the feedback showed that top brass of the banking industry did not like this idea and showed disdain on this article / my views.    The views  were brushed aside as idea of a low rank retired banker who does not understand banking!   However, I continued the follow up as and when opportunity for the same was available.   The various press releases issued by RBI and internal guidelines of some banks during last few weeks  clearly shows the loss of enthusiasm and reversal of their policies in line with views expressed in the above article i.e. of stopping sale of third party products.    However, they are still shy to accept their mistakes and totally reverse the same.

Let us first discuss sale of gold coins, I have written in above article "Should banks indulge in such anti national activities for small margins, which are actually not their as the time spent by the staff in promoting this activity is more valuable than the commission earned.   Nowhere else in the world, banks will do such an act for earning small commission.   In case banks are reluctant to stop the sale of gold coins, RBI must come with new  guidelines to stop the same as it is proving to be against our national interest".  Now in the first week of May, 2013, there was a news which read as follows:-

Ruling out ban on sale of gold coins by banks, the Reserve Bank of India, asked lenders to refrain from aggressively selling the precious metal.   “We do not want banks to aggressively market gold. We do not want that to become a business,” RBI Governor D. Subbarao told reporters .   In a bid to curb demand for gold, the RBI,  imposed restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs and mutual funds.

Thus, RBI stopped short of banning the sale of gold coins by banks, but he has sent a strong  message that Banks should not make this as a business, as was being done by many CMDs / EDs / GMs in last few years, where targets were set for branch managers, and they were cajoled to sell without bothering about black money investment and even allowing investments from loan accounts of borrowers.   Even during my service, I have raised this issue at various forums but was snubbed by top brass on the plea as to why I only think of nation and not income of the bank.   I wonder whether banks will survive if India sinks.  Now it has become a big challenge for GoI to curb the current account deficit owing to large scale gold imports.   Had banks played a positive role by not aggressively marketing gold coins, there would have been at least some relief for the nation now.    There is need for CMDs and EDs to think about the nation first and then think about bank, as banks can not grow in vacuum when economy is sinking due to huge current account deficit, which is mainly on account of large scale gold imports.

Coming to sale of third party products like insurance policies and mutual funds.    Both these products needs to be sold by and to people who understand the products properly.   I n last few years, banks have been very aggressive and there has been massive mis-selling of insurance and mutual fund  products .    Branch Managers, officers and staff  have been given targets for the sale of these products and were lured to mis-sell the same by offering cash incentives and / or foreign trips.   Frankly speaking, I feel these products were sold almost on similar lines as is done in case of Ponzi schemes.   It was due to this large scale flouting of KYC norms in sale of these products that Cobrapost thought of the sting operation.    Like in Ponzi schemes, everybody, right from the clerk / Scale I officer (who actually sells the insurance policy or mutual fund) upto CMD (in between falls the Branch Manager, Regional Heads, Zonal Heads, GMs, EDs) shared in the booty of cash incentives and foreign trips.   Regional Heads / Zonal Heads bulldozed those honest Branch Managers who were reluctant to mis-represent the features of the products.   The honest officers were pulled and were taunted as "thekedar of sachhi",    These things have now come to light after the Cobrapost sting operation.  Now even CMDs  / EDs / GMs can not put the same under carpet, which they did  when I first wrote last year.   Even after the Cobrapost sting, Mr K. C.  Chakrabarty, DG at RBI,  tried to give clean chit to three banks.     Was he afraid that fire may not reach back to the period when he headed two large banks in India?   Thank God, he miserably failed in his attempt in giving clean chit to such banks, and RBI  Governor over-ruled him and has agreed that these banks indeed flouted the norms.

Thousands  of bankers have shared in the booty of commission / incentives from sale of Mutual Fund policies and Insurance Policies.  A good number of bankers have already enjoyed foreign trips on account of meeting / exceeding the targetted sales of such third party products.    However, after the same has been exposed by Cobrapost and it has come under lens of RBI,  some banks have already shelved the foreign trips of some officers although they were given the letters of appreciation and assured for foreign trips.   

Now I  just want to ask one question from top brass like CMDs / EDs.   Whether such sales and schemes floated were ethical and good in law?  If yes, then why they have now retracted from the incentives of foreign trips already assured to bankers who achieved targets under the scheme floated by the banks?  If no, then why they did float such schemes and even punished the officers who failed to meet their targets as they never wanted to mis-represent the products.  Do the top brass knows the damage they have done to the credibility of the banking system by such mis-sellings?  This reflects poorly on the knowledge and credibility of CMDs of banking system.   It is matter of concern that no one has been held accountable for flouting rules and continuing such schemes for years together.  

However, finally RBI has woken up to this issue and is likely to issue some guidelines for regulating the sale of such products.  

Thus, I feel vindicated to great extent.    CMDs / EDs have been exposed  which shows their narrow approach towards profitability by hook or crook,  rather than a broader approach which is in national interest.    They fail to appreciate the advise given by certain straight forward and honest bankers, as  they are always surrounded by flatterers and dishonest officers.    RBI has taken steps, which are short of totally stopping the sale  of above products.    I feel RBI needs to totally ban the sale of such products by banks as in India we are still far away from using ethical methods in the sale of such products.  It seems RBI does not want to do so as it will be a big embarrassment for RBI as well as banks.   RBI need not feel shy or embarrassed as mistakes can be committed at any level.  The earlier you realise the same, better it is.