RBI cautions banks against mis-selling insurance products--Business Standard
Should have clear segregation of duties of marketing personnel from other branch functions
The Reserve Bank of India (RBI), in its financial stability report has raised concern about the conduct of banks while distributing insurance products. RBI said in some cases, it was observed banks did not have a clear segregation of duties of marketing personnel from other branch functions, and bank employees were directly receiving incentives from third parties such as insurance companies, mutual funds and other entities for selling their products.
According to current rules of the Insurance Regulatory and Development Authority (Irda), a bank is permitted to sell insurance products of one life insurance company, one general insurance company and one standalone health insurance company. “There have been some cases of insurance companies directly incentivising bank staff to increase sales. But this is not an industry-wide phenomenon and wherever there have been some discrepancies, both RBI and Irda have initiated appropriate action,” said the chief executive of a private life insurance company.
RBI said in some cases, direct incentives to the bank staff have created distortions in the sales structure. According to Irda’s Annual Report 2011-12, the highest number of complaints in life insurance related to mis-selling. RBI noted they mainly pertained to the private sector, though LIC leads the business with a 70 per cent share.
A senior official of a private life insurer with a bank partner, said deploying insurance company personnel to sell products at bank branches leads to a conflict of interest. Hence, Irda prohibits this practice and encourages bank staff to sell policies, only in line with a customer’s need. “Since a significant portion of private life insurance companies use banks as corporate agents, there seems to be an urgent need to revisit the marketing and sales strategies adopted by banks in pushing such products, especially since insurance is among the more complex of financial products for the common man to fully comprehend,” said RBI. The limits on commission structure and operating expenses of insurance firms are laid down in the Insurance Act, 1938.
Compliance with these limits is monitored on an annual basis and instances of breach face penal action. It said the main findings of RBI’s probe on certain banks’ practices involving structuring of transactions for tax evasion and fraudulent transfer of funds point towards laxity in adherence to Know Your Customer/ Anti-Money Laundering guidelines.
Banks are required to disclose details of customers and fees received for referring products of companies, even if they are referring products of one company. “Irda is working with RBI to ensure the disclosure made by banks acting as corporate agents, in Notes to Accounts, are enhanced to bring about transparency in the nature of payments received by them,” RBI said.
According to current rules of the Insurance Regulatory and Development Authority (Irda), a bank is permitted to sell insurance products of one life insurance company, one general insurance company and one standalone health insurance company. “There have been some cases of insurance companies directly incentivising bank staff to increase sales. But this is not an industry-wide phenomenon and wherever there have been some discrepancies, both RBI and Irda have initiated appropriate action,” said the chief executive of a private life insurance company.
RBI said in some cases, direct incentives to the bank staff have created distortions in the sales structure. According to Irda’s Annual Report 2011-12, the highest number of complaints in life insurance related to mis-selling. RBI noted they mainly pertained to the private sector, though LIC leads the business with a 70 per cent share.
A senior official of a private life insurer with a bank partner, said deploying insurance company personnel to sell products at bank branches leads to a conflict of interest. Hence, Irda prohibits this practice and encourages bank staff to sell policies, only in line with a customer’s need. “Since a significant portion of private life insurance companies use banks as corporate agents, there seems to be an urgent need to revisit the marketing and sales strategies adopted by banks in pushing such products, especially since insurance is among the more complex of financial products for the common man to fully comprehend,” said RBI. The limits on commission structure and operating expenses of insurance firms are laid down in the Insurance Act, 1938.
Compliance with these limits is monitored on an annual basis and instances of breach face penal action. It said the main findings of RBI’s probe on certain banks’ practices involving structuring of transactions for tax evasion and fraudulent transfer of funds point towards laxity in adherence to Know Your Customer/ Anti-Money Laundering guidelines.
Banks are required to disclose details of customers and fees received for referring products of companies, even if they are referring products of one company. “Irda is working with RBI to ensure the disclosure made by banks acting as corporate agents, in Notes to Accounts, are enhanced to bring about transparency in the nature of payments received by them,” RBI said.
Banks may see hit on treasury portfolio due to volatile yields ----Business Standard
The yield on the 10-year benchmark bond 7.16% 2023 ended at 7.45% on Friday compared with previous close of 7.56%
Most banks may see their treasury portfolio taking a hit as government bond yields have been volatile in this quarter which ends on June 30. According to treasury officials of few public sector banks, there have been marked-to-market losses and that will get reflected in their books.
The yield on the 10-year benchmark bond 7.16% 2023 ended at 7.45% on Friday compared with previous close of 7.56%. The yield was at 7.99% on April 2.
But at that time it was the old 10-year benchmark 8.15% 2022. The new 10-year benchmark was launched on May 17 and at that time the yield was 7.16%.
“This quarter will be better than the same quarter last fiscal, but it will be same like previous quarter,” said the head of treasury of a public sector bank. In the previous quarter most banks had taken a hit on their treasury portfolio.
Banks had bought government bonds on hopes that there will be two repo rate cuts in this quarter. The Reserve Bank of India (RBI) had cut the repo rate by 25 basis points in May and the rate currently stands at 7.25%. However, expectations of a further cut in the mid-quarter review were not met as the rupee started weakening significantly against the dollar. The weakening rupee took a toll on bond yields.
It was only in the last couple of days the recovery on the back of narrowing Current Account Deficit (CAD) in the fourth quarter (Q4) of last fiscal. After the CAD data was released the rupee found support. Even on Friday the rupee strengthened after US Fed downplayed the notion that they would bring an imminent end to its bond-buying programme also known as third round of quantitative easing (QE3). The strengthening rupee resulted in bond yields falling.
“There will be losses in treasury portfolio as many banks had taken position on hopes of a further repo rate cut in June,” said the treasury head of another public sector bank.
The street is now looking forward to the possibilities of a repo rate cut in the first-quarter review of the monetary policy on July 30. There are also hopes that the rupee will strengthen from current levels due to which yields may fall further.
BY T K Vidyasagar Facebook ::::
ReplyDeleteTODAY AGAIN I WANT TO SHARE MY VIEWS WITH YOU AS I CANNOT STOP FLOW OF MY EMOTIONS . I FEEL BANKS ARE RUINED BY COMMISSION OR INCENTIVE BASED CROSS SELLING , LIKE LIFE INSURANCE , MUTUAL FUNDS, DEMAT ACCCOUNTS, GENERAL INSURANCE . IN THESE DAY I FEEL BANKING ARE EVERYTHING EXCEPT BANKING . SENIOR MANAGER SCALE IV AND V ARE BUSY IN CROSS SELLING . THEY ARE MORE INTERESTED IN SELLING INSURANCE THAN LOANS . IN SOME CASES I HAVE SEEN THE CUSTOMER REFUSED TO BUY LOAN PRODUCT BECAUSE MANAGER WANTS TO FORCEFULLY SELL INSURANCE OR MUTUAL PRODUCTS TO THEM . IN THE RBO's OF MOST OF THE BANKS THE MANAGER POSTED THERE UNNECESSRY PRESSURIZE THE BRANCH STAFF , THREAT THEM , TRANSFER THEM , SO I HAVE SEEN IN LIFE INSURANCE MOST THE MDRT's(MILLION DOLLAR ROUND TABLE CONFERENCE ) ARE SCALE IV OR SENIOR MANAGER POST IN ADMIN OFFICER OR RBO . THIS SHOULD BE PREVENTED . THIS INCREASE CORRUPTION . BANKS SHOULD BE VERY CAREFUL ABOUT THE OFFICERS WHO ARE POSTED IN ADMIN OR RBO OR ZONAL OFFICES .BANKS SHOULD BE TIGHT CONTROL OVER THE BEHAVIOR OF THEIR MANAGER WITH STAFF PEOPLE . I STRONGLY BELIEVE THAT A GOOD MANAGER ALWAYS LOVES HIS STAFF LIKE A FAMILY AND A CORRUPT MANAGER ALWAYS TRIES TO THREAT HIS STAFF , SCOLDS THEM , DISCOURAGES THEM , BECAUSE HE HAS NOTHING TO DO WITH BANK. HE ONLY LOVES MONEY FROM CORRUPTION , BANKS SHOULD BE STRICTER NORMS FOR CORRUPT PERSONS, THEY SHOULD IMMEDIATELY REMOVED FROM SERVICE OR ALL THE BANK WORK SHOULD BE SNATCHED FROM THEM . IF AT THIS TIME GOVT HAS NOT TAKEN NOTE ON CORRUPTION IN BANKS , THESE GREAT INSTITUTION WILL BE IN TROUBLE IN COMING TIME