Misselling by Banks

The notion of ‘Bank’ in the mind of general public implies the image of a trustworthy and secure institution. We generally do not scrutinize the bank statements. We take for granted all the entries in the statement presuming it to be genuine and do not raise any sort of doubt. But the recent survey by ET Wealth has revealed that three out of five bank customers are not satisfied with bank and its practices. We discuss some of the reasons for their dissatisfaction.

Mis selling : It is the experience of many customers that the Bank relationship managers’ are making strong sales pitches for  endowment life insurance plans. The sales pitches are influenced by the commission rates of financial products irrespective of the suitability of the products .Endowment life insurance policies offers commission of 35-40% on the first year premium.

In fact these policies are combinations of insurance and investment where the customer ends up on losing on both side; lower insurance protection and lower return on investment.  ULIP’s on other hand is a tricky product which have lower insurance combined with market risk. Further banks are selling mutual fund products which are not in line with the risk profile, goal horizon   and proper asset allocation. The experience of reputed singer Mrs Kavita Krushnamurthy is a classic example of such mis-selling in which she lost heavily due to toxic products sold by HSBC Bank.

High service Charges: Reserve Bank of India has deregulated service charges of banks from 1st April 2015.Banks are charging various types of charges to customers which was not there earlier. Many such items are inappropriate for simple banking services. Some banks even charge merely for visiting the bank branch. Even ATM drawals in excess of five in a month attract Rs 20/- on each additional drawal.

Credit card Fees: There are large number of complaints for levy of late payment fees on credit cards and this is rising. On non settlement of the disputed transactions and late fees, the Banks prefer to report as default to CIBIL which impact the credit score of the customers. Recently the RBI has mandated that banks cannot charge a late fee for the delay in payment of less than 3 days.

High average quarterly balance: The Banks are monitoring the minimum and average balances strictly and any deviation is followed up with penalties. The Bank may or may not inform the customer the penalties debited to the account. The amount of minimum balance may be as high as 10,000/- . In many cases the Banks sou motu upgrade the status of the customer to “privilege” status which requires maintenance of higher minimum balances.

Lack of transparency: RBI brings changes in policy with an aim to pass on the benefit to the ultimate consumer. But Banks are reluctant to pass on the benefit. One such example is repo rate i.e rate at which RBI lends to the Banks, has been reduced by 1.25% over a year by RBI but banks have passed only 0.60% to the customer. Many banks have CASA (Current account and Savings Bank) deposit of more than 40% of the total deposit but they do not give more than 4%interest on saving bank account and no interest in current account although RBI has liberalized the saving bank account rates. In case of home loans, many banks are yet to pass on the benefit of interest rate reduction to the customers. This is impacting the salaried class whose whole life is spent worrying about high home loan EMI’s.  

Technology: According to ET Wealth survey, one out of five PSU bank customers don’t find their bank technologically advanced enough. Customers have to face problems for online transactions due to frequent site breakdown, failed transactions, delayed re credits and non functional ATMs.  

What is the way out?

The survey finding in ET wealth indicates that 52.9% of the customers are looking to change their Bank. But,  in our view that may not be a solution. The ideal way is to get ready to pay for the services, scrutinize your Bank statements regularly for any wrong debits and bring it to the notice of the Bank. In case the issue does not get resolved, it has to be escalated to Bank Ombudsman/Consumer court.

Further it is better to avoid buying of insurance and Mutual Funds through the Banks. The better way is to take the advice from a fee only financial planner & SEBI Registered Investment Adviser and buy online Insurance plans and Direct Mutual Funds where there is no element of commission in the products.

Last modified on Wednesday, 10 February 2016 06:20

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.


  • subhra kiddy

    posted by subhra kiddy

    Wednesday, 06 January 2016 11:29

    Very helpful

  • aishwarya mishra

    posted by aishwarya mishra

    Wednesday, 06 January 2016 11:26

    Please share your contact no!

  • D.P.Tripathy

    posted by D.P.Tripathy

    Wednesday, 06 January 2016 11:25

    An Eye Opener...indeed very good.

  • D.Balu

    posted by D.Balu

    Tuesday, 22 December 2015 06:16

    Mis-selling is happening and issue needs to be discussed like this.

  • Durga P.

    posted by Durga P.

    Tuesday, 22 December 2015 06:13

    Please continue to post good articles

  • Sujata Aniruddha Sapkal

    posted by Sujata Aniruddha Sapkal

    Tuesday, 22 December 2015 06:11

    Excellent information...thanks for the article.

  • Anay Mahajan

    posted by Anay Mahajan

    Saturday, 19 December 2015 04:51

    Very Informative article


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