RBI cautions banks on mis-selling third party products

RBI cautions banks on mis-selling third party products

  • February 17, 2016  
  • |  
  • UPDATED   12:51 IST

Concerned over "mis-selling" of third party products like insurance by banks, the Reserve Bank has warned of regulatory action against them. The Reserve Bank has also asked the Indian Banks Association (IBA) to come out with an appropriate industry practice in regard of sale of third party products.

Addressing a Conference in Thiruvananthapuram, RBI Governor Raghuram Rajan said the findings of some recent incognito visits undertaken by the RBI on sale of third party products by banks and a study undertaken by some academicians/ consumer activists, had "hinted" at mis-selling of products, especially insurance products, by banks.

The findings, he said, had been shared with the IBA for examination with a view to bringing about an appropriate industry practice in this this regard. "An ill-informed customer tends to make sub-optimal choices, the Governor stated and added that the Reserve Bank might even consider regulatory action against banks if they continued mis-selling of their products," a RBI statement said.

He further said the Reserve Bank was exploring ways to resolve customer complaints across regulators through forums, such as, Financial Stability and Development Council (FSDC).

Besides regular banking services, banks offer third party products like insurance policies and mutual funds. Speaking at the occasion, RBI Deputy Governor S S Mundra also indicated that the IBA would shortly circulate standardised forms used for certain common banking services. He emphasised the need for moving customer service from lips to heart and added "customer service is a business need of banks and not social service".

Mundra cautioned the bankers that if they did not take customer service seriously, competition will ensure it. The conference held during February 15-16 was attended by managing directors and senior executives of major commercial banks, IBA, Banking Codes and Standards Board of India, Banking Ombudsmen and heads of regulatory and supervisory departments of the Reserve Bank.