The story behind mis-selling

Mis-selling is not an aberration but a structural byproduct of the current incentive architecture in most banks

- TAMAL BANDYOPADHYAY

A branch of a large public sector bank in a semi-urban town in central India had failed to record even minimal growth in the low-cost current and savings accounts (Casa) and retail term deposits last year.

It had, in fact, missed the annual growth targets on three key business parameters. Besides a drop in Casa and term deposits, its pile of bad loans had also increased.

Yet, the head of the branch was close to bagging a foreign trip, arranged by the bank’s insurance channel partner. After all, it had done substantial business in garnering life insurance policies.

When the banker discovered that the branch was short of just ₹10 lakh to hit the premium target, he and an insurance agent — who presented himself as a staff of the bank — persuaded Uma Devi (name changed), 71, to redeem her fixed deposits and invest in what they described as a “noble” product that would deliver better returns.

For years, the senior citizen had been coming to the branch to withdraw cash and renew the fixed deposits her late husband had opened. Now, two of these fixed deposits were redeemed, and the proceeds were invested in a life insurance policy, requiring a yearly premium of ₹10 lakh. No one assessed her ability to meet this commitment over the next five years.

‘The branch manager won a seven-day foreign tour, for “training” in the United States. Besides sightseeing, it included dining at Michelin star restaurants, with a few training sessions thrown in.

This year, when the insurance company asked for the second annual premium, a shocked Uma Devi rushed to the branch. By then, the manager had been promoted and transferred to another state. The insurance agent, who had posed as a bank staff, had joined a different insurer.