by

Rajesh Goyal   

I am sure this topic will raise many eyebrows in the banking circle - specially among the Senior and Top Management of Banks.    Even during my service days,  I  was of the firm view that banks must stop selling  so called "third party products", but had little control as policies are decided at CMD and ED levels and reasoning has no say in banking industry.      Whenever, I tried to discuss this issue with my seniors during my service, I was almost snubbed on the plea that we earn extra profit with the same staff.    Rather than listening to reasoning, my seniors  felt that I am saying so,  as  I wish to shirk my responsibilities for marketing of these  products or I do not want follow up with branches on this issue.   Thus, I had to continue to promote these products.   CMDs and EDs do not like that anybody argues with them even on merit.  You try it, you will be transferred.

Today I would like to share my personal views on this topic with our readers -  Some of you will certainly have reservations about this.    I respect your contra views but would like that we should have a healthy debate on this issue rather than just say we will blindly follow what our top management says. 

(A)  Why Sale of Gold Coins Must Be Stopped by Banks :   I am of the firm view that Banks should immediately stop selling Gold Coins.   Frankly speaking, the Banking Regulation Act does not allow banks to trade in commodities.    However, this norm was relaxed by RBI with certain conditions in pre-2008 era when the country saw huge dollar influx resulting in sharp appreciation of the rupee. To sterilise dollar inflows, banks were allowed to sell gold.   The data indicates that India imported 963 tonnes of gold in 2010 and another 878 tonnes of gold in 2011.    Gold coins sales at banks rose 33% in 2011 to 18 tonne as against 13.5 tonne in 2010.   SBI, ICICI, HDFC Bank, Bank of India and Indian Overseas Bank accounted for 70% of the total gold coins sold in India. 

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.

(B) Why Sale of Mutual Funds Schemes Be Stopped :  This is also sale of "third party" products .  This  has been  aggressively marketed by bankers in last few years.   There is competition among the banks for sale of Mutual Fund schemes.   Top management ties up with some Asset Management companies and assures them that  their branches spread across the country, will sell mutual fund products.  Incentive schemes for staff (including senior management and top management) are introduced for selling  new / existing Mutual Fund schemes.   Bank staff, who does not understand the risks associated with these products, are asked to market these products.   Targets are given to each BM and then aggressive follow up is done to check the progress in sale of  such products.   General Managers, Regional Heads, Circle Heads are cajoled to promote these products in an all India level competition whereby the topper are offered cash incentives and FREE TRIPS For the family to SINGAPORE or to some other exotic destination.    In the regions headed by officers with a myopic vision, almost whole staff is put on the job for selling this product so that their head can earn a free trip.   All the borrowers are contacted and are asked to compulsorily buy such products.    Some of them do oblige by investing  few thousand rupees.  However, they surrender the units within a month or so at a loss.    This neither helps the Mutual Funds nor the banks.   Such borrowers later on keep on reminding BM and Regional Head about the obligation for buying Mutual Fund schemes, and extract number of other concessions in the loan account.    Thus, ultimately bank loses more than what it had earned as commission.    In order to meet the target, staff at Branches gives mis-information about the returns to depositors, who buy the same and later on curse the bank staff for low yields or losses.   This results in reputation risk for the bank.    Some of such customers are lost by the bank permanently for giving misinformation.

During my tenure I too have sold such products to meet the targets and even earned small commissions on two / three occasions, but was never happy as I felt this is not a service to my organisation but is cheating towards the organisation as we have allowed our good deposits (some of that must have again be collected by paying some underhand commission) to dither away.  

(C) Why Banks Should Stop Selling Mediclaim and Insurance Policies :  Coming to sale of mediclaim and life insurance and general insurance policies by banks, I have witnessed the branches deploying the most scarce staff for selling 2 policies of mediclaim of Rs 1700/- each, wherein bank earned a commission of about Rs 50/- or so.   The loss on account of the time wasted by the existing staff (ignoring the follow up of NPA accounts or garnering fresh deposits) on marketing of such policies is  much much higher than the commission earned.   No one dares to talk about this with CMDs or EDs.   Schemes are drafted at HO level by flatterers who are least bothered about field staff.   CMDs and EDs are convinced that  Bank will earn few crores of additional income by selling such products with the existing staff.  No body realises that how much energy is wasted at branch levels to meet even the smallest targets for these products.     Bank staff is least equipped to do marketing of such products.   Most of the time, staff gives wrong information or hides information,  to the clients who later on curse bank for the wrong information.   If ever bank will do an analysis, they will realise that hardly anybody has been able to claim mediclaim on the policies sold through them as they contain so many if and buts.  

I have put my views very bluntly and it is based on  my own practical experience at Head Office, Circle Office and at Branch level.    I am sure number of  our readers who have worked at Branch level  must have faced similar problems or held same views, but are helpless in exposing these as nobody at the top level listens to these reasoning.   This is one of the reasons that banks staff is bleeding and now started affecting bank balance sheets.  Across the world the concept of universal banking is showing reverse trends.   You must concentrate on your core business.    Somebody can always suggest a car dealer to sell cigars and costly cigarettes to earn extra commission, as rich people visit the show room.   In all likehood his total earnings will fall if his existing staff is busy in selling cigarette and they fail to attend properly to one prospective car buyer.   This is the reason that a car dealer does not sell cigars or costly cigarettes  or wine to earn additional commission from his rich customers.

I hope some better senses will prevail in the banking industry and they will stop the sale of above products.   I have all the sympathy for the field staff till that time.