Government Banks take action against wrong selling of insurance and other products to customers
This month, several state-run banks, including the State Bank of India, Indian Bank, and Bank of Baroda, issued internal circulars prohibiting senior executives from organizing business conclaves, seminars, or felicitation events until the end of March.
Reason Behind the Circulars
The primary reason behind these circulars is to prevent the aggressive selling of insurance and mutual fund products through campaign-style promotions. Such campaigns often lead to executives being rewarded for achieving high sales targets, potentially encouraging forced selling or mis-selling practices to customers.
Pressure from Top Management
The pressure to sell these financial products trickles down from the top management level to individual bank branches. In many cases, customers are not adequately informed about the risks associated with the products, resulting in instances of mis-selling. This culture of rewarding aggressive sales and penalizing those who fail to meet targets is prevalent in the banking industry.
Examples of Mis-Selling
Notable examples of mis-selling include former Yes Bank executives allegedly selling Additional Tier 1 bonds to fixed-deposit holders and HDFC Bank executives force-selling GPS products to auto-loan customers. These practices have led to regulatory penalties and customer dissatisfaction.
Consequences of Mis-Selling
Mis-selling can have severe consequences, as seen in cases where retail investors found their money stuck in financial instruments like AT1 bonds when the issuing bank wrote them down during a bailout. The toxic culture of pressuring employees to meet sales targets has resulted in instances where products are sold to clients without considering their suitability.
Initiatives to Curb Mis-Selling
Amidst these challenges, some banks have taken initiatives to curb the mis-selling of products. Recent directives from large state-run banks may set a positive example for other financial institutions to follow suit. These actions are aimed at fostering a change in the operational culture within the banking industry.
Emphasizing Customer Needs over Sales Targets
It is crucial for banks to prioritize selling products based on the genuine needs of customers rather than meeting sales targets. This shift in focus can contribute to a healthier and more customer-centric banking environment.
