Jairam’s ‘maneaters’ need a strong consumer movement

Expense Account, Mint

Growing up in the 70s and 80s in urban middle India was to know what shortages are. The state strangled enterprise and everything from a scooter to a phone to butter, milk and grain was scarce. The civics and history textbooks stank of double standards as they spoke about an India that was far away from the life of the person for whom that English textbook was written. I call it the Manoj (Bharat) Kumar movies phase of India—we were losers but were brainwashed into looking back at a glorious past. A past that was distant enough in its historical dividend not to matter to people struggling to find an average “service class” livelihood. Of course, “business class” then meant not an airline seat but something totally different.

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Banks vs retail investors

Expense Account, Mint

The Hongkong and Shanghai Banking Corp. Ltd (HSBC) has been in the news in the past week for all the wrong reasons. Globally, the bank has been under pressure not just for mis-selling in the UK but also for allegedly violating the US anti-money laundering laws. Its third quarter results have a provisioning of another $800 million to account for the over $1.5 billion hit the bank may take for the alleged money laundering. The bank has already provisioned another $353 million, taking the total in penalties and compensation to about $1.8 billion on account of mis-selling the payment protection insurance (PPI) in the UK. The mis-selling issue has now chased the bank to India and recent newspaper reports say that the bank has been instructed by the London headquarters to stop selling mutual funds (MFs) and insurance products till it revamps its sales practices. The story said that a “culture audit” found instances of mis-selling. The bank denied the report to say that the revamp of wealth management was work-in-progress and no sales have been suspended.

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Focus shifts from income to expenditure

Expense Account, Mint

The world hit the Millennium Development Goal (set in 1990) of halving poverty five years ahead of time in 2010, but delve deeper into the numbers and it is clear that India has reason to worry. It has been China’s ability to take 660 million people out of poverty that has powered the achievement. India has been the drag on this number with Indian poor, who live on less than $1.25 a day, making up about half of the 1.3 billion poor in the world. Poverty persists in India though per capita income has quadrupled in the 15-year period to 2010. Direct reflections of persistent poverty are poor social indicators. Life expectancy at birth in India has improved from 58 to 64 over the 15 years, but we’re behind our immediate neighbours—China is at 73, even Bangladesh and Pakistan are ahead at 67—not to speak of global peers. India’s access to improved sanitation more than doubled to 31% of the population, but China is at 55%, Bangladesh at 53% and Pakistan at 45%. The persistence of poverty and the sluggishness of social indicators suggest that something is wrong with the Indian model of growth.

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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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Of human shields. And the bank savings deposit rate

Expense Account, Mint

You and I are really important to the country. Did you know that we are the human shields that protect the nation? Against bank failures, against financial exclusion, against insurance exclusion, and against starvation of insurance agents.

While working on the Swarup Committee Report a couple of years back, I had reason to go fairly deep into the arguments presented by many parts of the retail financial market—the product people, the sellers, the regulators, the government itself. It was then that I realized the value of each one of us who finally has to pay for badly constructed financial products, skewed markets, one-sided contracts and regulatory gaps. If we were not going to buy the cost-heavy life insurance policy, for instance, how would India’s insurance penetration rise? The meat on the bone left for the industry and the sellers was meant to encourage penetration. Of course, we won’t go into why, after 50 years of meaty bones, the penetration is still nearer zero than 100. If we were not going to pay the obese commissions, how would lakhs of agents run their homes? If we were going to protest mis-sold products by our bank that never sleeps, some poor relationship manager was, gasp, going to see his career run aground. He would carry a lighter bonus sack home. Oh! My! God! (Yeah, I’ve been watching Friends on the 3G stick.)

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How alpha, beta, gamma can solve my retirement problem

Expense Account, Mint

It was a particularly dense afternoon. Not only was the August humidity making the lecture theatre of the Delhi School of Economics seem like it was hanging in limbo, but the long strings of equations with tiny symbols alpha, beta, gamma and the sponge-like creature epsilon, made the lemonade stall just 50 steps away seem like a very aspirational place to be. Twenty years ago, air conditioners were for the super rich and not postgraduate Delhi University students. As I squinted dully at the board far away and frowned to open the shutting eyelids, I swore never to come back to something so far removed from reality. Here were guys who assumed a perfect world with fully rational players and then made equations that sought to solve macro problems. But the real world outside was chaotic and all the long equations (with the aspirational QED at the end) were not teaching me anything that was closely related to the real world as I saw it.

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Three costs that a financial product seller must sign off on

Expense Account, Mint

Though I knew the extent of angst against banks as serial mis-sellers of financial products, I was a little surprised at the huge reach-out from readers after the column last week where I wrote about systematic cheating by banks (http://bit.ly/iffYbq) to collect fees and commissions on retail financial products. Apart from sharing stories of being lied to and cheated by banks, readers wrote in to get inputs on what sort of checklist should they ask the seller to sign off on. Of course, implicit in the request is the knowledge that regulatory action will be too little and too late. A specific request goes like this: “Could you make a simple checklist which we can use? We could simply print it out and have the relationship managers sign it when approached.” Says another reader on Twitter: “…practical suggestion—a simple carbon copy worksheet, where employees explain the workings of a scheme. Each retains a copy it can be signed by both. If there is a dispute, each can go back and refer.”

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Banks never sleep, but RBI does

Expense Account, Mint

I wonder why the Reserve Bank of India (RBI) has got its head buried in sand over the extent of lies that bankers tell their customers in their attempt to hit them with inappropriate financial products to earn their bonuses and meet their targets. And I wonder how banks can calmly tell angry customers who protest that the products recommended and promises made by their staff (relationship managers) are not the responsibility of the bank. “The person who sold this to you has moved from our bank, what can we do?” is the most commonly heard excuse to the customer. I recently met an artist at a do. As I tanked up about art, a subject I know nothing about, she reciprocated by asking me questions about financial products. Her story turned out to be the story that I hear over and over again. The average story goes like this: The trusted bank sends its “relationship manager” who knows how much money there is in the account. He usually comes with an insurance company guy. They both sell inappropriate products by lying about product features and what they will return. And when the customer complains some years later, the bank coolly talks about that person having moved on. “And can we sell what you bought and put you in something new now?” And hit the customer with another harmful product.

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Towards the end of being good

Expense Account, Mint

There is a problem in being good. Or as Gurcharan Das asks in his book, The Difficulty of Being Good, On the Subtle Art of Dharma—“why be good?” The first time I questioned this basic premise that has been drilled into most “service class” people as we call ourselves was many years ago when the kid came back from school all beaten and scratched. She’d been hit. So why did you not complain? There was nobody around. Hit back? But you said good kids don’t hit others. The problem of being good.

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Ulips: re-made in India

Expense Account, Mint

Armed with basic knowledge of an Excel sheet and some dribbles of wisdom after a basic capital markets course, when I opened a unit-linked insurance plan (Ulip) brochure five years ago and tried to do the math, I fell off my chair. The sheet showed me a product that was so inherently unfair and loaded against the investor that I thought I had mis-understood it. But long hours spent decoding various products (with lots of work put in by a trainee who is now India’s ace insurance reporter and works in Mint) told me that the conclusion was right: The Ulip product was a trap. What do you call a product that allows the entire first-year investment to be used as cost? What do you call a product that swallows the entire first- and second-year investment if you dare stop funding the product? What do you call a product that pushes forward a lifetime of costs in the first two years and then pushes you to exit—leaving your money behind? All those who were mis-sold the Ulip product in the last few years are now understanding the extent of the fraud.

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