3-6-3 banking costs the poor money

Expense Account, Mint

It is almost as if the seething Indian aam admi is finding one more thing to get furious about—there has been a string of financial sector failures in the past few years that have directly affected the wallets of the average Indian. While the telecom and the VIP helicopter scandals add to the widely held belief that people in positions of power or those who have access to them, are corrupt, these are still far away from directly affecting the everyday finances of the household. But the institutional theft from the wallets of the average Indian is something that hurts real time. And we’ve had plenty of these in the past few years. Speak Asia, a multi-level marketing company, lost more than Rs.2,400 crore of retail money. StockGuru lost Rs.500 crore and mis-sold life insurance products cost Indian investors more than Rs.1.5 trillion. The latest is the collapse of the Kolkata-based Saradha Group where more than Rs.20,000 crore is at risk.

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Front-loaders get front-loaded

Expense Account, Mint

If you hear of a company selling a stake in itself, and then giving money to the buyer to buy that stake, what would you think? There’s something wrong with the deal. That’s the story in the bancassurance market right now and the rush of life insurance companies to tie up with a bank has reached a level that is making the whole bancassurance model unstable. The latest deal between Syndicate Bank Ltd and Birla Sun Life Insurance Co. Ltd (BSLI) has finally got insurance industry insiders upset enough to begin talking. From what I hear, Birla Sun Life will pay Syndicate Bank Rs 600 crore that, it seems, the bank will use to buy 6% of BSLI equity. What’s not clear yet is how exactly Birla Sun Life will account for this money. Other questions arise as well. What if the bank can’t sell enough? With this kind of money to recover from the business, how persuasive will the banks need to be to get their customers to buy products? By approving such deals the banking regulator is benignly looking at a potential banking debacle. But let’s stay with insurance for this column.

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