When Banks Undermine Government's Effort To Provide a Safety Net by Stealing Depositors' Money
Dear Finance Minister:
I am writing to bring to your attention the fact that public sector banks (PSBs) are undermining the government’s effort to provide security to the economically underprivileged through a series of thoughtful insurance schemes.
How is this happening? Banks are given targets to sell these schemes to allow the government to showcase high subscriber numbers. Instead of targeting people who need the insurance and persuading them to buy, banks are enrolling depositors as subscribers without their permission. They are debiting the premium from their accounts. This is theft. However, because banks are doing it and formally mentioning the debit in our account statements, we tend not to recognise it for what it is.
Countless individuals have voiced grievances about such thievery on social media platforms. Moneylife has reported on the issue and bank unions candidly admitted that their members are compelled to engage in such questionable activities by senior management. Yet, the banking and insurance regulators have studiously turned a blind eye to complaints about banks pilfering depositors' funds and the subsequent harassment endured to stop monthly debits.
What is shocking is that these are good insurance schemes that would provide a crucial safety-net amidst rising income inequality, if they reach the right people. Instead, the government’s intention is defeated by prioritising enrolment numbers and rather than reaching the right people. You need to ask regulators to do their job by preventing mis-selling and engage with stakeholders to find effective ways to reach insurance benefits to those who need them. Allow me to explain the flaws in what is happening today.
There are seven government-sponsored insurance schemes, of which we are primarily concerned with two:
1) The Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) offers a life cover of Rs2 lakh for those in the 18-50-years age group at an annual premium of just Rs330 (now Rs436).
2) Pradhan Mantri Suraksha Bima Yojana (PMSBY), which is an accident cover for those between 18 and 70 years of age with a premium of Rs12 (now Rs20) debited every year from bank accounts.
In addition, the Jan Dhan accounts have a built-in accident cover of Rs1 lakh and life cover of Rs30,000; but you don't see banks making any effort to push these after the massive initial push from the prime minister’s office (PMO).
The theft from depositors’ accounts is primarily for enrolment for PMJJBY and PMSBY schemes and the mischief is confined to PSBs who can be pressured to meet targets. Consequently, senior management misuses technology to select specific demographics for enrolment based on the money in their accounts. This often ends up targeting students who are living away from home on fixed expenses provided by their parents. In many cases, the insurance may be superfluous since parents may have already purchased family insurance. Thus, the debits become a double blow for students as well as parents. Additionally, banks seem to be targeting senior citizens as well.
Regulatory Failure
The Insurance Regulatory Development Authority of India (IRDAI) mandates that insurers, agents and brokers include the phrase “Insurance is a subject matter of solicitation” in all communication. This implies that buyers must request insurance by filling out the proposal form themselves. In practice, agents hard-sell certain schemes and customers blindly sign forms without reading the terms and conditions. This prompted IRDAI to introduce the two-week look-in clause providing a window in which to reject the policy.
When banks debit your account, ostensibly for a government insurance schemes, these basic protections are thrown to the wind. My colleague Yogesh Sapkale, in his article writes that accident insurance debits often start months after the policy period has begun, so it is not even valid for a full year. Most customers do not notice the premium debits and have no clue that they are insured, so no claim is made in the event of death or an accident. Perhaps the government is turning a blind eye to illegal debits because it ensures that the payouts and, consequently, the premiums remain low. In the first year, when it was hugely publicised, accident insurance claims were high and the premium has increased from Rs12 to Rs20.
Jayanthi, who turned 70 recently, writes that she had already subscribed for the PMSBY accident policy through her private bank. Last year, State Bank of India (SBI) also began to debit Rs20 as accident insurance without her knowledge or authorisation. All her protests to SBI fell on deaf ears. The issue ended when she turned 70 and was no longer eligible. Had she made a claim, she would have been paid only on one policy and SBI got away by taking her money for nothing. Does IRDAI’s responsibility end with asking insurers to publish a solicitation proclamation? Why can’t banks be asked to email policy terms and conditions to customers? Is it because that would alert them to the debits?
Some, like Canara Bank, indeed reverse these debits on customer objection. But this is not good enough. To make a valid claim, individuals must know that they are insured, as well as the terms of the policy and the claims process, which is usually elaborate and requires the filing of a first information report (FIR) with the police (for accident policies).
In August 2017, DT Franco, then general secretary of the All India Bank Officers Confederation (AIBOC), had complained to IRDAI about banks forcing officers to push insurance schemes based on their corporate arrangements. He had also pointed out how basic concepts, like consent of the customer and suitability, were thrown to the wind and customers were frequently arm-twisted to opt for specific policies. Regrettably, neither IRDAI nor the Reserve Bank of India (RBI) has cracked down on these practices; so where is the question of doing more to inform customers or the nominees and heirs about their rights?
Way Forward
PSBs are unable to sell government insurance schemes, so they are coerced to debit customer accounts. At the same time, there is little effort to educate less literate, low-income policy-holders on the advantage of these schemes. But there is another category of Indians who may be keen to ensure that the government safety-net is available to people working for them. These include employees of small entrepreneurs and domestic support staff such as drivers, home-helpers, care-givers for children and senior citizens, security guards and cooks.
Even middle-class families in India have multiple people providing a part-time support system. Moneylife Foundation’s dipstick survey indicates that people are willing to pay the insurance premium for their support staff, but the system lacks appropriate provisions. Simply transferring money to their bank accounts will not work since banks can appropriate it against other dues, or the account holder may use it for a different purpose.
After the COVID pandemic, telecom companies quickly tweaked their systems to enable payment of another person’s bill. Why can’t this be done for government insurance schemes as well? It shouldn’t matter who pays the premium so long as the beneficiary is a low-income individual and receives the entire benefit. If this is permitted, the person paying the premium will take an interest in ensuring proper claims process and the banker’s job will be limited to weeding out fake and fraudulent claims.
Should the public be better informed, it could lead to higher claims and insurers are likely to demand increased premiums. The accident insurance premium has already risen from Rs12 to Rs20 and the life cover is up from Rs330 to Rs436; I believe that people buying insurance for their support staff will be willing to pay a little more, so long as it remains reasonable and the claims process is friction-free.
Don't you agree that a socially-oriented government scheme that reaches the intended beneficiary is far better publicity for any government than quoting empty numbers through mass activation of subscriptions by gouging depositor accounts? The key to successful implementation lies in keeping it voluntary. A technology solution is needed to ensure only one policy per individual, since support workers often have part-time jobs. Tech-experts could also suggest ways to prevent fraudulent claims. Following the Odisha train disaster, the All India Bank Employees’ Association (AIBEA) proposed the idea of sending out automatic alerts to ensure that benefits of PMJJBY and PMSBY reach families of victims who had this insurance. This needs to be put into action urgently.
Let’s not forget that our bureaucrats could also kill a good idea by making it obligatory for employers to buy insurance and transfer the cost, duty and burden of the State on to individuals. The way forward would be for you to ask IRDAI to engage with stakeholders to come up with a voluntary and workable step forward to supplement the government’s effort and not to replace it.
I look forward to a positive response.
Yours Truly,
A Citizen
5 months ago
Excellent article covering 360 degrees of the issue. You have done your duty ! Let's see what the govt and regulators are upto! I am afraid if the employer has insurable interest on his servants as per law. If no, what can be done ?
5 months ago
Why are banks still in connivance with big business people getting loans being not taken to task and those people in banks shouldbe fired and also amount recovered from them
5 months ago
PMSBY is INR 20 per annum and not INR 20 per month
5 months ago
The claim settlement in these schemes is very poor. Claims are pending for months together. Claimants are lurching between bank and insurance companies.
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