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.
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