Bancassurance turns nightmare as bankers face pressure to sell insurance products

Bank executives, especially from public sector banks (PSBs), are facing immense pressure from top management to sell third-party products like insurance. Failure to meet targets invites informal penal actions while meeting targets brings perks such as parties in five-star resorts, several bankers told Moneycontrol on the condition of anonymity.

Banks typically cross-sell insurance products of their subsidiaries, and sometimes of other companies, along with loan products. Many times banks insist purchase of policies along with loan products.

While this has been the case for a long, of late the pressure has grown manifold on mid-level bank executives who typically do not speak in the open fearing the wrath of senior colleagues, said the bank executives. Moneycontrol spoke to at least five executives across six banks. None of them wanted to be identified citing the sensitivity of the matter.

“We are forcefully imposed to sell insurance products, despite the fact that we are bankers, we have become agents of insurance companies,” said a manager-level employee of the Bank of Baroda on the condition of anonymity. “In the last 1-2 years’ core banking work has disturbed badly as our workforce was involved more in selling insurance products,” said the official.

A former deputy general manager from one of the PSBs told Moneycontrol that sometimes life insurance companies even misuse the data provided by the banks. “They try to independently approach customers (using the data sourced from banks). General managers get holiday perks made available by the insurance companies,” said the former DGM.

Similarly, an employee at Kolkata-based UCO Bank said bank executives often have to compel customers to buy insurance. “Most of the bankers are against such practices but sometimes we make lofty promises to customers in the name of returns to buy third-party products,” said a UCO Bank employee.

Often, employees of insurance companies sit in bank branches and introduce themselves as bank staff to sell products.

“This happens in many branches where the products of the PNB Metlife are sold,” said a PNB employee. Similarly, a manager-level employee of UCO Bank told Moneycontrol that they are pressurised to sell SBI Life products. In return, most senior-level executives such as zonal managers, regional managers and branch managers get perks for holidays, the official said.

While seeking a response, SBI General Insurance replied, "it has always been and will continue to be guided by the protocols, rules and regulations laid down by the IRDAI."

However, emails sent to UCO Bank, PNB, PNB MetLife, SBI Life Insurance, and Bank of Baroda did not elicit any response till the time of filing this story.

C H Venkatachalam, General Secretary of the All India Bank Employees Association (AIBEA) said insurance companies typically offer gifts to bank managers for selling their products.

“Insurance companies also treat some of the bank managers who canvas more insurance products. They entertain them lavishly including trips abroad and here also, and other things,” said Venkatachalam.

Of late, this has become a fashion among the management to sell insurance products, Venkatachalam added.“Bank employees are not conversant with the rules and regulations and the risks involved in all these things. They don't know the product also,” said Venkatachalam.

J N Gupta of Stakeholder Empowerment Services said that banking is a very different business of selling products. “When two things get mixed, the quality of the banking staff goes down. So in long run, it will affect banks themselves. Core banking is different from selling,” said Gupta.

Do RBI rules permit banks to sell insurance products?

The Reserve Bank has allowed banks to act as brokers for insurers, set up their own subsidiaries and also undertake referral services for multiple companies.

An email sent to RBI and IRDAI seeking response too didn’t elicit any response.

“Banks may undertake insurance agency or broking business departmentally and/or through a subsidiary,” RBI said in the guidelines for entry of banks into the insurance business.

“Banks which work as corporate agents of insurance companies are allowed to solicit insurance cover only for policies where the sum assured is not more than Rs 5 crore per policy as per the Insurance Regulatory and Development Authority of India's corporate agent regulations,” said Kartik Parekh, a Sebi-registered investment advisor and research analyst.

So, where’s the issue then?

Gupta explained that the “third-party products’ forced selling practices can be questioned as these are pure marketing jobs divested from the job of banking. “This diversification leads to diverting bankers from core banking,” he said.

He noted that forced selling not only leads to pressure on employees but also causes them to do unethical practices, for which common people directly suffer. The mixing of the two functions of the bank can create an avoidable conflict of interest and lead to poor risk management.