Friday, June 28, 2013

RBI To Ban Incentive

After spoiling banks by incentive oriented policies , RBI is now planning to ban incentive on sale of insurance product sale and very soon they will realize how incentive on performance of  various jobs in banks offered by bank management have damaged work culture and they will plan to put ban on that too.


It is observed that top bank officials are awarded with Free Singapore trip, Europe trio or Bangkok or Malasia and free leave when they achieve target fixed for non-interest income.It is also found that in most of the cases such officers fail to achieve target for interest income because of rise in Non Performing Assets (NPA ). Similarly Branch Head or credit officials put pressure on good borrowers of the branch to buy insurance policies and mutual funds or blackmail with bad borrowers for the same so that they achieve target for non interest income and become eligible for various incentives offered by insurance companies.On the contrary volume of NPA in these branches goes on increasing month after month. Advances sanctioned by these clever officials goes bad in a year or two and even old advances goes bad because of negligent monitoring and negligent servicing of existing customers.Bank officials bargain with customers on selling of non banking products when they decide to sanction a credit facility or enhance the existing credit facility. Due to such ill-motivated lending , banks have to incur huge losses and face erosion in profitability when existing loan accounts become non-productive as per RBI norms for income recognition.

In India planning is the best but worst is its execution. Policy to motivate bank staff appears very much attractive, but in fact it is killer pill and creates negativity in real performers .top officials of the Bank themselves earn incentive through window dressing in deposits,  advances and profits and similarly they promote window dressing at branches to support their flatterers and sycophants.As soon as an organisation formulate  a incentive orientation policy , corrupt officials discover to exploit such schemes by hook or by crook. Officials seldom take care of future interest of the organisation when they become blind and greedy for personal gain.Such bad officials get immediate promotion even though they have caused bigger loss to the bank.A clever officers earn a few thousands or a few lacs of rupees as commission on insurance products sold by them but cause loss amounting to  crores of rupees through their ill-motivated lending. And such officers are even picked up in promotion process bypassing honest performers.



Similarly promotion policies framed in banks are said to be merit oriented but in fact it is framed in such a way that it becomes flattery oriented and bribery motivated. Despite all good points in all parameters of promotion policies, an officer is picked up in interview for promotion to higher scale only if he or she has backing and recommendation of some top ranked officer or some powerful person from Government departments and ministry of various departments.

This is why good performers have become silent spectators of 'Draupdi Chirharan' and stopped taking part in incentive process and promotion processes offered by bank management unless and until he or she has the blessing of some top officials.

Dependency of flatterers in banks by top ranked officials and ministers and blind faith on unnatural target oriented management have resulted in abnormal rise in bad debts and rise in losses arising due to frauds in bank and it looks ridiculous when the clever top officials blame global recession , interest rate and natural calamity for growing sickness in bank.
I however appreciate the plan of RBI to ban incentive for bank staff selling insurance products and very much hopeful that RBI will soon realize that freedom given to bank to earn from non banking products like insurance and mutual funds have only badly affected the health of bank and for this non other than so called reformers are accountable and responsible. 

It is open secret that Bank officials in greed of earning petty amount of incentive have failed to protect the interest of banks fund amounting to billion and billion of rupees. They earn a few crore of rupees as commission on sale of non banking products but cause loss hundreds of crores of rupees by ignoring the pre-sanction , post disbursement and monitoring part of credit sanctioned by them which results in finance to unscrupulous borrowers and ultimate write off  of loan or sacrifice of bank's fund in compromise settlements. 

'Penny wise and pound foolish ' is the most suitable proverb for these so called prudent and clever bankers of modern era.



RBI plans to ban incentives for third party product sales

--News published in ET 29th June 2013

KOLKATA: Reserve Bank of India is planning to put a blanket ban on the practice of earning incentives by bank officials for selling third party products, as such practices led to rampant mis-selling and allegedly encourage them to got involved in structuring transactions to aid tax evasion and fraudulent transfer of funds. 

The banking regulator has also banned cash payment for any transactions above Rs 50000 for third party insurance or mutual fund products. It said the payment should be directly debited from the customers account with the concerned bank and cannot be done using other bank cheques. 

RBI has issued a draft guidelines on wealth management services (WMS) or marketing distribution services offered by banks, after investigating the charges levelled by online portal Cobrapost on employees of Axis BanHDFC Bank and ICICI Bank 

The investigations revealed that many of these transactions centered around the WMS provided by banks as well as marketing of third party products. It has already penalised these banks for violating know your customer (KYC) and anti-money laundering rules. 

In most cases, there was no segregation of duties of marketing function from other branch jobs and banks do not engage separate workforce which creates a conflict between banks' interest and that of the third party insurance or asset management company. There were instances of bank employees directly receiving incentives from other entities for selling their products. 

"Banks must ensure that there is no violation of the above in the incentive structure to staff," RBI said in the draft rules issued on Friday as it underscored a need for better regulatory compliance by banks. "There should be no evasion of these regulations by accepting several amounts for lower values from the same client to avoid the stated threshold," it said. RBI has also emphasised on training on bank personnel before getting engaged into third party product marketing. It said the products should be marketed only in branches having specified trained personnel. 

It told banks to put grievance redressal machinery and compensation policy related to mis-selling, agency services and service defaults. RBI has been concerned over violation of KYC guidelines , mis-selling of products that are unsuitable for the client, conflict of interest between the marketing and advisory/financial management function , and lack of robust risk management systems and procedures leading to frauds.

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