I don’t think there will be many people in urban India who do not have a bank mis-selling story to share. The systemic use of bank branches to mis-sell life insurance products and to churn mutual fund portfolios is now part of the urban Indian discourse. The problem is not new. I remember first raising the issue of banks mis-selling insurance and mutual fund products in 2007 with one deputy governor of the Reserve Bank of India (RBI). I was treated to lunch and anecdotes from those in the room of how people close to them were ripped off by banks. In fact, subsequently, in every committee I served on—Swarup Committee 2009 (bit.ly/2tLat6F) and Bose Committee 2015 (bit.ly/2rS3xmK)—the offline conversations included stories of bank branches turning into dens of tricks and traps. I’ve raised the issue of mis-selling with RBI, and with the ministry of finance, and so have others who work in this space, most notably Moneylife magazine (bit.ly/2t7r5HJ and bit.ly/2sHtN6b), which has raised it on multiple occasions. But the messaging that came down from the towers of oblivion on Mint Street was always the same: not our problem; let the sector regulators deal with this.
I am out for a Saturday lunch with the husband and his friend. They meet regularly to argue over whether RD (Burman, not recurring deposit) was God. They almost cause a riot arguing about Bappi Lahiri (don’t even ask). Soon, sanity comes along with the food and the conversation turns to the friend’s portfolio (thank you, God). He is using some adviser who floats around in his office and seems pretty happy with him. I ask a few questions and feeling a bit like Gregory House (those who watch the TV series House will get the reference), I set out to destroy his warm, fuzzy feelings towards a guy who is obviously incompetent.
Does finance benefit society? The answer is: It depends. The answer depends on who is asking the question. Ask the average person in a living room in India and the answer will be a resounding no. Households prefer real assets such as gold and real estate to financial products. They have good reason to distrust finance due to fraud and episodes of institutional cheating of household savings—either through rules that work for the companies or due to financial repression that sees purchasing power melt away because of inflation. Another reason why individuals distrust the financial sector is due to the mismatch between what the priests of high finance do and what they earn. Just for trundling money around and then losing a lot of it for us, why should these guys be paid millions is a question that’s often asked. Of course, it does not prevent the same individual from encouraging his kid to join high finance. After all, the money and the good life is there.