THIRD PARTY PRODUCTS: MALPRACTICE BY BANKS


Recently the HDFC Bank was imposed with penalty of Rs 10 crore by “The Reserve Bank of India (RBI)” – for wrongfully selling third-party non-financial products to its auto-loan customers. Which raise the question what exactly are “Third party Non-financial products“? And its ambit of operational features.

THIRD PARTY NON FINANCIAL PRODUCTS
Such products generally are sold by banks considering some other institutions. Third party products are not one hand self generated products distributed to be sold by the concerning banks with no evidence of the same within the balance sheets for reason such transactions not hailing from the category of loans or deposits. With no prerequisite of providing capital to earn income from the aforementioned sources, these are entirely fee based incomes for the bank. General examples of which can be looked upto as : Insurance Products , Mutual Funds, Government Bonds and Gold Coins etc.

CONCERNING ISSUE?
Following the complaint put to notice by a whistleblower last year regarding dereliction of duty HDFC Bank had dismissed six employees on negative findings against them. The allegations on the bank were to have forced a quantity numbers of borrowers of auto loans and other potential services, to purchase a GPS device from a specified provider. A spokesperson however mentioned through a statement that : “HDFC Bank has a robust policy and process to deal with complaints and allegations and take action as appropriate. The process and the outcome of dealing with such complaints is an internal matter of the bank where we are required to be guided by our policy on disclosure. Suffice to say that as a bank, we’ve always upheld the highest standards of governance and propriety at all times and will continue to do so”.

An examination of documents in the matter of marketing and sale of third-party non-financial products to the bank’s customers, arising from a whistleblower complaint to RBI regarding irregularities in the auto loan portfolio of the bank, revealed, inter alia, contravention of the aforesaid provisions of the Act and the regulatory directions”, RBI issued the statement announcing the fine.Recalling which HDFC representatives agreed to abide by the orders of The Reserve Bank of India. 

It was only after consideration to the lender’s reply to the show-cause notice, and oral submissions made during the personal hearing where the allegations were substantially warranted imposition of penalty monetarily.

CAUSES OF SUCH ACTS
Despite the departing deputy governor of RBI suggesting to ban banks from selling third-party products, upper management of the banks regularly promote their employees to sell insurance, stocks ,mutual funds and other third party products to meet with the target for which they track down the borrowers, and immorally force them to buy the products they’ve their own goals set for to recieve incentives and favourable engaging revenue by the sale of concerned products. There were organised contests traced within banks to lure their staff with considerable rewards including all-paid foreign trips for maximum selling of insurance products. The expenses of which are borne by the concerned insurance companies. 

The abuse of such employment is not entirely limited to selling insurance policies, mutual funds or bonds. Broking services also are a part of such misleading transactions by some banks.

AWARENESS
To escape the malpractice, the customers must always keep few points beneath them before taking any action which can contribute to eventually into a loop of such actions with no end to stop. Few of them are;
 a. While considering products of interest, an individual must not entirely trust the banker in selling or providing with any non-banking product or a third-party product.
b. The advices regarding buying and selling must never be considered from an employee of the bank, provided the profits and losses if occur the liability will solely be considered of the borrower and not of employee who might never had stake in your personal choices and steps for profit but in the favour of the bank instead.

RBI GUIDELINES AND OMBUDSMAN SCHEME
RBI back in 2017 had through a circular mentioned of having its scope widened regarding the “Banking Ombudsman Scheme 2006“, which were proposed to include deficiencies arising out of sale of third-party investment products by lenders. Under the amended scheme, a customer was conferred with rights to lodge a complaint against banks for non-adherence to the RBI instructions with regard to mobile or electronic banking services.


Recently, the Reserve Bank of India (RBI) in its Monetary Policy Statement released on 05 February 2021, announced that the existing Ombudsman Schemes would be merged and integrated into a single scheme that will be rolled out from June 2021. As of now, there are three separate ombudsman schemes– one for banks, one for non-banking financial companies (NBFCs), and one for digital transactions. The objective of integrating the three schemes into a centralized one is to improve the grievance redressal mechanism for bank customers by making it simpler and effective. 
“Following the amendment, the pecuniary jurisdiction of the ombudsman to pass an award was doubled from Rs 10 lakh to Rs 20 lakh. The ombudsman was under the scheme empowered with power to award compensation not exceeding Rs 1 lakh for loss of time, expenses incurred and also harassment and mental anguish suffered by the complainant. There was also included an option for customers to go in for appeal in respects to closed complaints ,which was not available earlier”.

Earlier, if the buyer of an insurance policy or mutual fund was mis-sold or corruptly made to buy a product, they had to seek redressal from the insurance company or the mutual fund. This was a departure from global practices. “For instance, in the year 2016 ,in UK four of the biggest banks, Barclays, HSBC, Lloyds and RBS, faced large fines for wrongfully placing payment protection insurance”.

Currently, by the year 2021, there are 22 ombudsmen in India, each with a specific territorial jurisdiction. Aggrieved customers can lodge their complaints with the ombudsman either through an email , electronic means or through posts. However, before filing a complaint with the ombudsman the customer has to approach the grievance redressal department of the bank and wait 30 days for a response. Unlike the courts, no fees are required to be paid.

However, the ombudsman can refuse to hear a complaint if it is time-barred or already heard in some other court. Over 3.3 lakh complaints were received in 2019-20 under all three schemes as compared to a little over 2 lakh complaints in 2018-19. In other words, the number of complaints to the Ombudsman increased by a whopping 65% in just one year. Complaints received against banks rose by almost 58% during this period. “The complaints registered against banks went up from 1.64 lakh cases in 2017-18 to 1.96 lakh cases in 2018-19, and to 3.09 lakh cases in 2019-20, an increase of 89% in two years” reports a survey.

CONCLUSION
The brief discussion supra showcases the misuse of employment by the banking sectors that are considerably at a large scale practiced without even leaving a tint of innuendo for consideration of any wrongdoing or commission of any activity which is in a way profiting the banks indirectly which is a harsh shift from the core moral banking activities. The Guidelines by RBI and active steps by the customers only were able to trace the minority of such instances which through a healthy mechanism of availability of procedure against the same became less complex to understand and follow by regular victims.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

Do follow me on FacebookTwitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems at adv.aishwaryasandeep@gmail.com

We also have a Facebook Group Restarter Moms for Mothers or Women who would like to rejoin their careers post a career break or women who are enterpreneurs.

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