Have a complaint against mis-selling in banks? Now go to the RBI's Bank Ombudsman

After much deliberation and delay, the Reserve Bank of India has allowed the banking ombudsman to register complaints from July 1 for banks misselling a financial product such as insurance, mutual funds or any other third-party products.

In its June 16 notification, the RBI amended The Banking Ombudsman Scheme 2006 to include provisions to complain to the ombudsman if the sale is ‘improper’ or ‘unsuitable’, if there is lack of transparency, if one is not informed about the grievance redressal mechanism or if the after-sales service is denied by the banking staffs.

The provision is a much-sought relief for customers as till now, there was no proper complaint mechanism to register grievances against the banking staffs.

According to a survey conducted by Moneylife magazine, nearly 90% of responded had told that they were mis-sold a financial product or service. In the same survey, more that 70 percent had found the internal grievance redress system of banks are ineffective.

However, few economists have termed the move too late and too little. Monika Halan, currently a Financial Planning Standards Board India member, writing for Livemint highlighted that the terms ‘improper’, ‘unsuitable’ or transparent has not been defined in the notification which could be problematic.

She further questions the RBI and its staff being the final authority for consumer complaints as well as appeals. “The appeals should be outsourced to a regulator-agnostic agency that looks after all financial sector consumer complaints,” she opines in the piece.

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How is  mis-selling done in banks?

>Misguiding the customer to choose a certain product. For example, if the agent or banking staff sell you an insurance product in the garb of a mutual fund. Always check for the name of the product and if it is an insurance or a mutual fund or any other financial products.

>Tricking the customer by telling only about the absolute returns on the product, not the annualized returns.

>Even if the customer does not need a life insurance but insisting him to buy one by highlighting ‘benefits’ which actually he might also be getting with the mutual funds. Usually banks earn more by selling insurance than mutual funds, hence the insistence.