The All India Bank Officers’ Confederation has urged the Reserve Bank Governor to take urgent steps to stop the menace of forced cross-selling of third party products in public sector banks.

The regulator should go beyond the token gesture of issuing a circular and act decisively, according to DT Franco, General Secretary of the confederation.

INDIVIDUAL INCENTIVES

Business priorities have come to concentrate heavily on cross-selling of insurance and mutual fund products, ensuring greater individual incentives than core businesses that contribute most to banks’ profits.

With the passage of time, the system of incentivising has led to banks drifting away from their core businesses, Franco said in a letter to the Governor.

Aggressive cross-selling has led to forced selling and, in turn, to mis-selling. Hardly any interest is shown in renewal premiums anymore.

What seems to promote this unethical mis-selling business is the hefty commission paid to the banker who colludes with superiors to ‘close a particular deal,’ Franco said.

The commission received by the respective banks (by virtue of being institutional agents) is meagre as the major portion is taken by the bosses themselves.

PAID IN KIND, TOO

In a sale made by a branch level officer, the commission is largely shared by him, his branch head, regional managers, deputy general managers and links to the very top.

Commissions are not only paid in cash, but also in kind in the form of foreign tours, gala parties and cocktail dinners.

However, mis-selling is not limited to public sector banks alone, it also exists in private sector banks, Franco said.

He recalled that cross-selling was introduced to accelerate profit by diversifying activities based on a bank’s network and customer base without associated risk.

The platform could be leveraged to ensure customer loyalty and inter-dependency with a sustained relationship to ensure sustained growth.

Thus, the concept was seen as an attempt to offer a one-point financial planning solution to customers and bind them to suitable products in line with their requirements and interest.

BRAND IMAGE ERODES

But customers are coerced into buying insurance policies at the behest of bank staff, who are only complying with the diktats of their superiors.

Such a rat race to earn more and more incentives is actually taking a toll on the bank's reputation and eroding its brand image. More so when the economy needs more credit offtake in rural and semi-urban areas.

When customers were motivated to go for mutual fund products rather than bank fixed deposits, even personal accident policies have been renewed without the express consent of customers.

Insurance has been made compulsory for the sanction of every loan, just like Form 16s or IT returns. Being a corporate agent, a banker focuses on the sale of products, but with limited knowledge.

He hardly makes a full disclosure about the products and assesses the risk appetite of the customers.

'CONDITIONAL' SERVICES

Clauses in fine print are never explained to the customers. In many cases, it is seen that on maturity of in-force policies, the customer receives much less than what he had originally invested.

While the core businesses of the bank earns it more than 95 per cent of the total profits, the latter channelises almost 60 per cent of the workforce towards cross-selling for a paltry contribution of five per cent.

Many of the banks have even started making services conditional to their clientele; i.e. a savings bank account can be opened only if the customer agrees to purchase an insurance product.

Sanctioning of a personal loan without opting for a life insurance product has become rare. Even farmers are forced to subscribe to insurance policies as collateral for sanction of tractor loans in times of agrarian distress and farmer suicides.