Beware of banks selling non-banking products
Moneylife Digital Team 30 April 2014

Top management of banks are pressuring their employees to sell insurance, stocks and mutual funds by hook or by crook. No wonder, departing deputy governor of RBI has suggested banning banks from selling third-party products

From the point of view of retail savers, banks are a place where you park your money and get facilities to withdraw, issue cheques and also borrow. But what happens when a bank employee “advises” you to move in and out of stocks, buy a particular insurance product or buy or sell mutual funds? The result is rampant mis-selling, losses and large number of baffled savers.


Here is an email we just got from an Axis Bank employee. “As you are well aware of the practices followed by banks to sell or mis-sell investments products I need not elaborate them. But believe me the pressure, which is applied by the bank’s management throughout the year for selling these products can only be equated to madness. The management puts so much pressure as if without selling these investment products, the bank will not be able to generate any revenues. Moreover, the high percentage of revenues shared by insurance companies during the first year of sales is a major attraction for banks. Almost all banks organise contests within its staff for maximum selling of insurance products, and the rewards include all-paid foreign trips. All expenses, of course, are borne by the insurance companies. In spite of Cobrapost operation, banks have again started these old practices,” said the employee, who does not want to be named.


This mis-selling is not limited only to selling insurance or mutual funds. Some of the banks, which offer broking services, are found many times to misguide its own customers. Take for example, this investor who has a trading account with Axis Direct. He received a call from an Axis Direct executive sometime in February, asking him to sell his Larsen and Toubro (L&T) shares at Rs981. Totally wrong call, leading to huge loss of profit for this investor, as L&T made hit 52-week high at Rs1,387 on 23 April 2014.


Explaining how this happened, the investor told Moneylife, “On 14th February 2014, I received a call from an Axis Direct executive who said, ‘it is a good time to book profits with L&T as there is no positive outlook on the stock and it has max'ed up and the stock cannot go more than the said level and so book profits immediately.’ I sold 120 L&T shares at the price of Rs981. After this point I kept a watch on the stock and I'd have accepted some Rs20 to Rs50 rise/fall in price, I would not have complained. But here the problem is different. The stock kept on rising and its above Rs1,350 which actually converts to a loss of profit of more than Rs44,000.” When he complained, Axis Direct responded by saying, “the stock decision is the sole discretion of the investor!”


The investor said, “Now I am pissed off and have decided to never take the calls from Axis Direct and might abuse them if they come up with advice. Also I believe that this call was made by someone who was low on his monthly targets and I became the victim.”

There are two hard lessons from these examples: 1. Never trust your “banker” to sell you any non-banking product or a third-party product in your interest. 2. Never take buying and selling advice from an employee who has no stake in your profits and losses. Moneylife tells investor not to trade on “hot stock tips” and make investment decision after doing indepth research and analysis. Moneylife Foundation organised free seminar; “Learn to be Safe & Smart with Your Money" on the basics you need to know for your own financial life. Newly launched Moneylife Smart Savers Network provides a complete guide on personal finance.


Investors cannot outsource the job of assessing the risks associated with their investments, selection of right stocks, right time to enter and exit. The Axis Bank bank employee who is pressured to hardsell third party products says, “It is important to restrict banks from selling insurance products (Life & General). Unfortunately the Reserve Bank of India (RBI) has not yet done anything on this issue. These days bank jobs are not to develop one's career as a banker but to become a salesman without paying much attention to the seriousness of banking business.”


In April 2013, Moneylife Foundation sent a memorandum to RBI governor on behalf of more than 21,500 members (at that time) to free the system of mis-selling of financial products by bankers, misusing the savers’ trust.

Moneylife has for long been highlighting the mis-selling of these services with specific examples. This was among the many issues taken up by Moneylife Foundation with RBI deputy governor, Dr KC Chakrabarty, at an Open House meeting in June 2013. In a cover story on such issues, (Read: Banks Vs Depositors ) Moneylife pointed out how selling of insurance, mutual funds and equity advisory services by banks have affected customers, who do not know which regulator will redress their grievance.

RBI ignores complaints about third-party products (some are not even regulated), while Securities and Exchange Board of India (SEBI) and Insurance Regulatory Development Authority (IRDA), both already poor at grievance redress, are even more reluctant to address complaints about mis-selling by banks.

Moneylife has highlighted several stories on mis-selling. A year ago, we wrote about how HSBC Bank promised Suchitra Krishnamoorthi, a well-known singer and actor, extravagant assured return of 24% from mutual funds as well as insurance, but instead continuously churned her portfolio. (Read: HSBC loots Suchitra Krishnamoorthi after big promises of 24% returns). The end result after five years was a direct loss of Rs83 lakh from investment, Rs28 lakh in HSBC commissions to HSBC, Rs18 lakh from decline in value of two insurance policies, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the income-tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the Bank.

On 14 March 2014, the Hongkong & Shanghai Banking Corporation (HSBC) suddenly called actor Suchitra Krishnamoorthi to discuss a settlement to close her long-pending allegation about gross mis-selling that had caused her a loss of over Rs1.85 crore.
(The Real Story of how HSBC Was Made To Pay)

In a similar case, another high net worth individual (HNI) based in London, found out abnormal churning of mutual funds in his portfolio that was managed by HSBC bank. Both are HNIs who were made to sign a power of attorney (POA) in favour of HSBC to handle their investments smartly.


Will RBI intervene in this matter or will it be a silent spectator? Until it does, keep your money in the banks but know that ordinary bankers turn into 'banksters' when they sell you non-banking products like insurance, stocks and mutual funds.


Nowadays, bankers, especially those in private banks have forgotten basic banking and generation of revenues out of banking business, as far as retail savers are concerned. Instead that they have become aggressive salesmen, selling insurance and mutual fund agents selling, often mis-selling these products to their customers or even to non-customers. This is resulting into a total shift of focus from generating revenue from the core banking business to this agency fee income.

9 years ago
As per Core Banking Solution (CBS), Customers are enables to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account.

My account is at BOB – Amreli and presently I am living in surat so that I had deposited 1 cheque of transfer (BOB to BOB) in Bank of Baroda – Nanpura (Surat) branch.

It is informed to me that transfer cheques can be deposited either at issuer’s branch or in receiver’s branch. And bank staff denied to accept this cheque so that I had meet bank manager for this but he also answering same. I ask for reason why it is not accepted then he tells that this is as per bank’s rules. I ask to manager to give this statement in writing that transfer cheques can not be accepted for this reason and also ask to see me rules of bank for this but he denied to give and tells that “do whatever you can do, i will not accept this cheque”.

There is no meaning of CBS in this type of banking facilities.

Due to this type of wrong banking many customers are suffering a lot. This is done with me so many times so i had explore this issue at RBI level also.

I think this is due to there is no benefit to that branch for accepting transfer cheques of other branches.
9 years ago



9 years ago





PRIVATE BANK OFFICERS compared to their packages

bank officers of private banks are BUSINESSMEN in bank premises
Doraiswami Sukumar
9 years ago
I completely agree. These banks ( private banks especially) appoint relationship managers (RM) only to sell non banking products to customers. These RMs have no experience of selling these products and invariably land customers in the dock. Moreover, these RMs are rolling stones and disappear from your life sooner than they appear!
Nikhil Gadodia
9 years ago
I agree. The way banks are selling other products is really creating problems.
I went to AXIS Bank & I was asked to take a non banking product to get a locker in the bank. Adding to it is the FD as well as bank charges.
SBI also asks for a wholesome amount of FD to get lockers with bank charges.
Wonder what will happen when there are new banks opening up in the coming years & where this competition take the customers..
9 years ago
why the activities of the BANKS cannot be restricted to banking only?other activities can be looked after by the professionals.let the RBI look in to.
sathishkumar dachinamurthy
9 years ago
Yes i totally agree with him, i too worked for Axis bank, they will ask us to sign in a white paper in the morning if we are not meeting our targets in the evening they will write our resignation letter, i had never seen in any field like this sought of torture, that too for a operation manager like me, who has to take care of operations and do these mis sells, money life please do something to save our investors, all insurance are sold by saying it is an FD.
Sam Koshy
Replied to sathishkumar dachinamurthy comment 9 years ago
Mr Sathishkumar Dachinamurthy, Can you mail me at ([email protected]) ? I will direct you to open this information to more people .
Gautam Haldipur
9 years ago
Having gone through several comments posted by my esteemed friends, I must say almost all of them have hit the Bulls Eye!Please recall my interview with Wealthforum on 12/09/2013 in the Advisor Speak column wherein I have clearly mentioned this in the column "Regulation in Insurance" & "What needs to be done" columns.We are 7 months away from when I wrote this hard hitting article, but yet to see the light of the day!.Large brokerages & Banks as has been repeatedely said continue to blatantly mis-sell Insurance or Mutual Fund products. I have personally cross checked the knowledge & the ability of banking staff to sell these products. Honestly, except in one case ( a person who was street smart & had a clearly declared intention of doing these businesses post retirement from the Bank, evidently a vested interest, was reasonably good), the rest were "less said the better" cases.Just see how the system works:-
1. You go to your banker for your regular banking work.(Please note he is one amongst whom you trust immensely to take care of your money).
2.During the course of your talk, you are introduced to Life / General Insurance products or Mutual Fund products.
3.Your mind works towards considering it for several reasons, few of which are:- a.You probably have a loan & feel obliged to your banker & would like to return the "favour".b.The immense trust you have in your banker.c.The misplaced feeling that since the Bank is associated with the product, it is fail safe (another serious misconception!).In the bargain the poor client has thrown all caution to winds.His decision is more emotional than logical.Please note, in this respect bankers are no holy cows! They would have everything in writing / print signed by you at every concievable space available on the paper, but when it comes to vice-versa, they will convieniently slip off & say Oh! its o.k. That is how they are able to escape the long arm of the law.(Read Disclaimers)Accountability & secondary service is simply non-existent in this segment without which it is doomed to failure & disenchantment.PLEASE READ THE FINE PRINT OF EVERY BANKING DOCUMENT BEFORE YOU SIGN )Frequent change of staff leaves the customer high & dry in the event of service issues arising.Very rarely select staff are dedicated to this task.I am sure I can write an entire thesis on this subject but in the present context it would make no sense. I will however humbly urge SEBI & IRDA to consider implementing the following suggestions:-
1. Completely ban Banks from cross selling these products. Why? because these guys simply do not have the time to go even to the loo! where would they find the time for an in depth analysis of products, save a few probably.
2.Banking is a core business by itself which is becoming more & more complex by the day. Please let them concentrate their energies on that which might probably lead to lesser NPA's in the industry.
3. Impart regular, compulsory & rigorous training on products to be sold & periodical refreshers which most likely will reduce mis-selling to a very large extent.
4. Let well qualified comprehensive financial planners take this roll where accountability standards already set by SEBI are not just stiff but sometimes draconian!They will obviously do a better job. Why? Simply because it is their core work!
Last but not the least, there is a lot more of work to be done in this field & let's sincerely hope things are put in place as soon as possible so that the common investor's life turns from sheer misery to bubbling joy!
Nagesh Kini
Replied to Gautam Haldipur comment 9 years ago
I maintain that selling third party products is no business of commercial banking, they're simply not geared for post-sale services. Banks should confine themselves to core banking of deposits and advances. Let them mobilize people to mop up deposits and recover overdues.
Gautam Haldipur
Replied to Nagesh Kini comment 9 years ago
Dear Mr. Nagesh Kini,
You are on the dot.Banks should confine themselves to banking & not venture into third party products in which their expertise is suspect & most of all post sales service being non-existent. It can really hit the banks hard at the trust level.
Suiketu Shah
9 years ago
One of the biggest frauds in equity's is HDFC securities VKsharma who behaves as if he is more important that the prime minister of India.If you trace his calls over the last 6 months you wl find he focus only on some 10-15 stocks and his calls are quite pathetic to say the least.

Pl stay far far away from HDFC Securities.I have BHel shares at a murderous price of rs 412 /share since 3.5 yrs bought via official consultation by hdfc.Thats speaks for itself.Bhel is now Rs 190/-
Veeresh Malik
9 years ago
The other thing I've noticed is that 3rd party re-sellers/agents are not sitting inside ATMs in AirCon comfort with walls plastered with all sorts of ads exhorting you to buy this and that. This needs to be stopped by RBI too and in addition all ATMs must be linked to an RBI monitored feedback cell operated by customer or anybody using mobile phone / SMS / ATM keypad / drop-box / piece of paper / postcard etcetc/.
Sam Koshy
9 years ago
Customers will find loss of their capital because they believe banks & bank employees. It is the duty of the bank top management & strategists to plan every year's revenue targets, no matter about the products they sell.

Target pressure on employees will be mounting & they are forced to mis-sell the third party products without knowing the suitability of the product to a particular customer. Adding to that employees keep on changing or they will be transferred frequently.

No bank staff can be a competent financial consultant because it needs time and expertise to understand the financial needs of clients, it needs to re-structure , continuous updations & servicing.

When a bank staff sell a product to a customer his role is over. He/She don't even check with the documents whether the information is correct or not. The staff is running to another customer because he/she will be always short of his revenue targets .

RBI, SEBI & IRDA should bring integrity by barring banks from all types of dealing with third party products like Insurance, Mutual Funds, Equity Trading etc. Banks should do banking only. This is needed to retain trust of common. customers & investors.
Nagesh Kini
9 years ago
Most seniors at the banks certainly don't like to move beyond core banking - collecting of deposits and making of advanced.
touting third party products is not the bankers' cup of tea. the new baccha's blindly mouth catch marketing phrases like 'long term perspective' etc. not really knowing what they mean.
they are a big zero when it comes to post-sale services for life and non-life insurance claims beyond 'referred to back office.'
best put all of them on a crash recovery process to bring down npas - present and potential.
it'll improve bottom lines!
9 years ago

The most important aspect of financial advisory is to understand a client’s needs and psychology before recommending financial products for him / her. This requires spending a lot of time with investors. Is it possible for bankers to spend that kind of time with clients?

Bankers may have required qualifications but do they have specialized experience? Are they honing their skills on a continuous basis as a professional financial advisor does?

Investors will be better served by someone who is competent and has a long term financial advisory relationship with them than by someone who keeps changing his / her role every few months as a banker does these days.

The greed for free lunches and the refusal to accept the importance of quality financial advice in one’s life is not helping the matters either.
Aditya Karnik
9 years ago
Banks selling third party products has really become contentious issue. and the worst part is more often than not, clients have utmost faith posed on their banker and they never realise how he/she is being taken for a ride. To add to the misery, one often sees his/her RM being changed periodically. Bankers must understand their basic function: Accepting deposits and lending funds. The sooner they understand this the better.
9 years ago
Dear Friends,
Even banks like Punjab National Bank are forcing their staff to sell insurance policies. The staff is not having much knowledge of these plans and since top bosses are getting gifts so they are selling it blindly.
Very soon customers of nationalized banks will face the music.
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