RBI, IRDA probe sting op findings Sale Of Gold, Wealth Management Products By Banks Also Under Scanner

Mumbai: The Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority (IRDA) have begun a probe into allegations of irregularities at branches of ICICI Bank, HDFC Bank and Axis Bank involving violation of antimoney laundering norms. Besides scrutinizing records at the head office and branches, RBI is also studying the process employed by banks in selling gold and wealth management products to see whether there are any systemic risks. 

    "The scrutiny has been initiated after an online media firm… alleged money laundering and violation of several provisions of the Reserve Bank of India Regulations, Foreign Exchange Management Act guidelines, Prevention of Money Laundering Act (PMLA), etc," a statement issued by RBI on Monday said. The statement added final reports on all the three banks will be completed by March 31 and "thereafter further course of action as necessary will be initiated". 
    "The media firm had uploaded some videos on the internet relating to thesebanks as well as ICICI Prudential Life Insurance and HDFC Life Insurance," the RBI statement said. IRDA sources said that besides the names of lifeinsurance companies, the videos also name four insurance plans and includes names of the persons selling the products. "IRDA has already asked the CEOs for their comments. They are also trying to ascertain whether the persons are qualified to sell insurance and whether there is any mis-selling of the product," a source said. 
    Bankers say that officials exposed by the sting showed willingness to become accomplices in money laundering largely because of targets to sell life insurance plans. Banks have been finding it tough to sell lifeinsurance following the loss of customer faith in the industry. Although the commission is paid to the bank and not to the employee, private banks set targets and provide incentives to individuals for selling life insurance plans. 
    "While getting term deposits of Rs 10 lakh is not a big deal for a branch, a prospect willing to invest up to Rs10 lakh in a life insurance plan would have enabled the branch manager his entire target," said a bank official. Bankers feel that RBI may take up this issue in a forthcoming meeting with bank chiefs on risk-based supervision next week. 
    Private life insurance companies have been aggressively selling lifeinsurance plans through branches. Branch managers have willy-nilly encouraged relationship managers to use moral suasion. "There have been instances when a bank official calls up a depositor and warns him that a cheque might be returned because of a small shortfall in his account even though he is not bound to make that call. It is at times like this, when the account-holder feels obliged to the banker that the sales pitch is made and the customer feels obliged to buy a policy," said a former banker. TARGETS, SOPS TO BLAME 

•Banks have been finding it tough to sell life insurance following the loss of customer faith in the industry 

•Bankers blame targets to sell life insurance plans for offi cials' willingness to become accomplices in money laundering 

•Private banks provide incentives to employees for selling life insurance plans