Mint, along with the Hindustan Times and NDTV, brings you a personal finance show called Let’s Talk Money. The weekly call-in show, anchored by Monika Halan, editor, Mint Money, and Manisha Natarajan, editor and senior anchor, special programmes, NDTV, aims to answer viewers’ questions about money-linked issues. This is an edited transcript of the show that was aired over the weekend on NDTV Profit and NDTV 24x7.
Natarajan: Last week, we opened a Pandora’s box on the rampant mis-selling of financial products by banks, of customers being misled, lied to and treated with complete disregard by banks... and we haven’t even touched the tip of the iceberg yet. This week, we’ll carry through with the same theme because we have a mission; to get policymakers and banking regulator RBI (Reserve Bank of India) to sit up and take notice of this.
Let me introduce the expert panel once again—B.D. Narang, former chairman of Oriental Bank of Commerce; Monika Halan, editor, Mint Money and Ashwin Parekh, partner, global financial services, Ernst and Young. Amit Gupta from Bangalore has yet another story and he wrote in to us to say what happened to him was nothing short of a robbery.
Amit Gupta: Let me tell you my story with guaranteed NAV (net asset value). I bought a Birla Sun Life maximize policy in 2005 with a staggering Rs 60,000 per year. When I saw the illustration @6% and 10%, they conveniently forgot to deduct the massive administration charges and showed all of my money as invested in Ulips (unit-linked insurance products); the truth was the firm invested only 30% in first year and about 60% in second year of the Rs 1.2 lakh I paid.
The principle was guaranteed for this fund now in 2009, when my total investments were Rs 2.4 lakh and I had to pay another premium. My fund value (at maximize with latest NAV) was barely touching Rs 2 lakh. I surrendered the policy and then came the fine print. The principle guaranteed in the fourth year was till the third year, meaning in 2009 when I surrendered my policy, what was guaranteed was three premiums, not four. For the fourth, I had to wait one more year, that is till May 2010, and I would then have got Rs 2.4 lakh. So logically, my NAV was higher, so I took back the policy at Rs 2 lakh. Here is the break-up. Invested Rs 2.4 lakh in 2005-2009 and return in 2009 was Rs 2 lakh.
All because of a sundry dream of highest NAV and greed. I think it is time we bought these robbers to justice and let them face the music. If I would have given this money to my wife, I would have made more money than this policy.
Natarajan: You are so right. If she had bought gold with that money, year-on-year returns would have been 24%. It is again a case of mis-selling. Now that’s what really bugs me, 6%, 10%, this has to stop. They have brought down the cost of Ulips, but that’s not stopping Monika.
Halan: That’s not stopping, though it’s got better. He talked about 65% cost. Yes, it was true, but from last year that has changed. The cost structure has come down drastically. But again, Ulips and the insurance products that carry investment in them still remain profitable for people selling.
If someone is selling insurance along with investment, you have to ask the question—how much of my premium will get invested? You have to ask that I am putting Rs 1 lakh, how much of this goes to work; ask what is the cost the company will deduct in percentage terms; write that down every year if it’s a 10-year product; an insurance and investment product is a 15-year product, that’s the sort of lock-in you should have in mind. Ten years is the minimum after which you will start making returns in an investment-cum-insurance product, and if you don’t ask the questions, this will continue. Get the details of the product on paper before investing.
Natarajan: Amit accepted that he didn’t do due diligence that’s why he was caught. Pradeep joins us from Chennai.
Pradeep Negi: While joining Wipro Technologies, Greater Noida, on 18 November, I opened a salary account with Kotak Mahindra Bank (Ltd), Noida Sector 18 branch. While doing so, I was given a list of offerings given by the bank to corporate customers. The deputy manager of the bank had promised me that I will be given all the facilities that had been mentioned. After 20 days of opening the account, I enquired about the credit card query for which they replied that two kits had been issued to me and they had been dispatched to my communication address. Upon regular follow-up, they have made a remark that presently, they cannot provide the facility of credit card as my office zone doesn’t fall in their service category. Whereas two kits that had been issued to me are nowhere in the line. This remark purely contradicts the previous statement. It’s a concern of total mis-selling, wherein the emphasis is given on sourcing of account only. Banks over-promise and under-deliver
Natarajan: When you were told that when you open an account you will get a card but you did not, that’s again over-promise and under-delivery. But the larger question here is that the customer has to wake up and get everything in writing, but what is the regulator doing about it? Right now, we are getting cases only from big cities. Imagine how rampant can it get when you go to smaller cities.
Narang: There are two aspects of this issue. One is top management; that how they view this element of mis-selling, are they tolerant or they are indulgent or their level of tolerance is zero. Unfortunately, within the bank, this so-called relationship manager will never allow you to go to the top level. For example, Citibank; people had number of queries about what is happening to them, but they couldn’t reach the top, they closed their own eyes, classic example of top management closing their eyes to what is happening to their clients and they become very tolerant about their juniors because they are making money for the organization. The bigger responsibility before we got to the regulator is that of (the) top management from the bank.
Natarajan: But all these top managements are getting their fat bonuses from the money made by their juniors.
Narang: This is where I come to. I will put it like this; major responsibility of supervising such discretionary elements is that of the top management. Lot of people sold foreign exchange derivatives, now some of them were sold against the laws of India, but no management is prepared to take action against them who sold. Quietly, they were asked to resign and they got jobs in other subsidiaries. Now, what does this mean, banks themselves were very tolerant to all this. Therefore, regulation has to not only penalize mis-sellers, but also disgorge the profits made by these organizations illegally; besides there has to be heavy penalty, including cancellation of licences.