Government to Crack Down on Bank Mis-Selling; RBI to Execute Complete Refunds from July 1. And in a stern warning to the banking sector, Finance Minister Nirmala Sitharaman makes it clear: banks should focus on deposits and loans — not on marketing unwanted financial products to their customers. Speaking at a central meeting of the Reserve Bank of India, the minister stressed that misrepresenting insurance and other financial products would have to stop. Customers, primarily home loan borrowers, have been reported to be induced to buy additional insurance that wasn't necessary.
The Criminal Act Is Changing How Mis-Selling Is Treated. As an instant jolt to the system, the government now makes clear that under the Bharatiya Nyaya Sanhita, mis-selling is not only a business dispute, it has been converted into a criminal offence. Its move came in response to rising complaints that customers were saddled with overpriced insurance while already protected. Now, what had been called “cross-selling” could be vulnerable to severe legal consequences. Regulatory confusion earlier in the year had complicated enforcement. There was overlapping concern between the Insurance Regulatory and Development Authority of India and the central bank which loopholes that resulted in customer losses that are suspected. RBI Draft Rules: Refund + Payment. To increase surveillance, the RBI released preliminary guidelines on Feb. 11 that includes stringent rules with detailed instructions:
If a bank holds a mis-sold product, its entire amount remitted from customers must be refunded. Any money lost is to be returned to the customer. The draft rules have a public feedback period that is open to all and is consultation-able to those in charge through March 4. The new standards likely will take effect July 1 and represent a stunning new emphasis on consumer protection in banking. Deposits Need to be the Goal, Not Products. Banks should revert back to basics, the finance minister told reporters — ramping up mobilisation of deposits at the low-cost Current Account and Savings Account (CASA) deposits, instead of aggressively promoting third-party products. Current trends show:
So, deposit growth of approximately 12.5 percent. Credit expansion at roughly 14.5 percent. Repo Rate Held at 5.25%. The RBI cut the repo rate to 5.25 percent. The repo rate was brought back down by the RBI to 5.25 per cent in a 125 basis point discount from Feb. But in its most recent policy review, rates remained unchanged once more, as the attention turned to liquidity management and financial stability amid global uncertainties. Big Message to Banks. The government’s hard-line stance marks a turning point. The users of such superfluous financial products could soon see the end of a period characterised by coercion. With refunds, compensation and the threat of prosecution could mean banks may be forced to rethink their sales tactics — and to put customer interest before all else. This could be the kind of crackdown that would probably inspire confidence to return to India’s banking system.
