Mumbai: The Reserve Bank of India (RBI) governor Shaktikanta Das on Monday asked banks to stop mis-selling products and opening banking accounts without proper Know Your Customer (KYC) verification. He asked lenders to carefully structure staff incentives to avoid encouraging mis-selling or unethical practices.
Das in his keynote address ‘Transformative Governance through Sound Boards’ at the conference of the directors of private banks asked banks' Board of Directors to focus on strengthening the internal governance framework within the bank.
“Unethical practices, such as mis-selling of products or the opening of accounts without proper KYC verification need to be curbed. Staff incentives should be carefully structured to avoid encouraging mis-selling or unethical practices. While such practices may yield short-term gains, they ultimately expose the bank to significant long-term risks, including reputational damage, supervisory scrutiny, and financial penalties,” said Das.
The central bank chief said that its inspection of lenders revealed instances where complaints were mis-classified as customer queries. It also said that it keeps coming across instances of rejected grievances not being escalated to the internal ombudsman of banks.
“The flexibility and space available to the banks for formulating their internal Board approved policies in line with the regulatory expectations needs to be used with utmost prudence, especially when it has a bearing on customers. Boards should give a close look at service charges and penalties when they are treated as avenues of profit or when forced bundling of products is done, or when disclosures to customers are non-transparent or selective. Ensuring fair lending practices and implementing robust grievance redress systems are critical to protecting customers' interests,” he said.
The Economic Survey tabled in the Parliament in July too had flagged mis-selling of financial products by banks and said that misselling and misrepresentation need acknowledgment, with firms compensating for consequential losses. This practice is important for stockbroking, fund management, banking, and insurance firms, the survey said.
