Tuesday, December 25, 2012

Your Bank Could Be Cheating You

Yes, you read the title correct. Your bank could be cheating you. The purpose of this article is to cover the blatant misselling of ULIP products as well as other services that banks are indulging in these days to cheat customers… To summarize the problem in one line, you visit the bank to get X service and they say you will get X only if you take Y as well, like a bundled package. This is wrong and so as customers we need to stand up to the bank and protect our rights...

Note: There are some bank officers who actually expect a bribe in exchange for granting the loan to customers who are either less creditworthy or do not have sufficient income. Though this whole concept of bribery and corruption is illegal, it is not part of this article. I am just covering the topic of banks selling more than one product to a customer who came in looking for just one.

What Triggered his Article?

A friend of mine (who works with me here in Singapore) went on a vacation a couple of weeks back. His wife was employed in Vellore (A district in the state of TamilNadu, India) and his sons were in school as well. So, he thought of buying his first home in Vellore. He was lucky enough to identify a good apartment at a reasonable price which his family liked. As any person would, he arranged for some initial payment and then visited one of the leading government banks for a home loan for approx. 30 lakhs. He spoke to the Manager of the branch and told him that he was on a 2 week vacation to India and hence would like to finish all formalities before he left back to Singapore. The manager was more than happy to oblige as it was an NRI customer. But, there was big catch here which my friend did not know or expect!!!

The manager started the formalities and convinced my friend that for his salary it would be a piece of cake to get the loan and promised them the loan within 7 days. A couple of days later he received a call which shocked my friend. He told my friend that, the loan is almost approved but it would only be sanctioned if he opted to purchase a ULIP policy paying at least Rs. 50,000/- every year. My friend’s wife had already decided on the decorations to the house esp. the Kitchen and so my friend did not want to disappoint here. So, he did some math and thought that Rs. 50,000/- works out to a little over Rs. 4000 per month which wasn’t a big deal and he unwillingly agreed.

He came back to work last week and told me this whole story over our usual coffee break. So, I thought I should write something about such misselling…

What Misselling happened here?

My friend went to get a home loan but instead he was sold a ULIP scheme also as a bundle offer. In this case, the amount involved is only Rs. 4000/- per month but, the point here is not about the money involved. Instead it is about what is right and what isn’t…

Are banks allowed to sell such bundled products to Customers?

No. The Reserve Bank as well as IRDA (Insurance Regulator in India) are very clear about this. A customer must not be forced to buy something that he isn’t interested in buying in the first place. In such cases, the customer has the right to refuse all the products that are being sold to him as a “Bundle”…

I am not talking about the regular pure-life-insurance policies that are sold along with Home Loans. In one of my earlier articles on buying a home, I had specifically suggested that we purchase a pure term Life Insurance policy that equals to the amount of loan that we are taking. This is done to safeguard our property in case of any accident. These pure term policies are extremely cheap and cost around 15000 rupees per year for coverage of around 50 lakhs. The ULIPs that are being sold these days to home loan customers charge you a ton of money and provide insurance coverage that usually doesn’t even work out to 10 or 15% of the loan amount we are borrowing.

So, if your bank asks you to purchase a pure term policy equaling the amount of loan you are asking for, that is a very good idea and you should take it. However, if they are asking you to invest in some XYZ ULIP and pay 50,000 or 1 lakh every year in order to get the loan, you must refuse or follow any of the strategies below…

To read more about the article on buying a home click here

Do banks sell ULIPs only to Home Loan Customers?

Actually, NO. ULIPS and Home Loans was just one example. Below is one more – from my own life…

Last year when I went to India, I had visited one of the major private banks in India to check out the availability of a Safety Deposit Locker to store my valuables. My mom was worried that since I work abroad and my brother too was planning a trip abroad, the valuables back home wouldn’t be so safe. So, I thought getting a safety deposit locker would be a good idea. When I visited the branch, the branch manager was very clear. She was willing to give me a locker if I purchased a ULIP product by investing at least 2 lakhs every year. I was shocked but at the same time did not want to give-in to their bullying and told them to keep their lockers to themselves.

Irritated by the response from the private bank, I visited one of the major public sector banks in India for the same thing. Guess what the manager there wanted me to do???

He wanted me to place 2 lakhs in a Fixed Deposit for 1 year and suggested that the FD had to be active for as long as I wanted to retain the locker. The moment I liquidate my deposit, I would have to surrender the locker.

The problem here is – There are no set rules or guidelines that actually give banks the right to force customers to buy/avail some product in order to get the main product/service they came for. But still, due to lack of proper enforcement, banks continue to blatantly missell stuff that customers don’t need.

So, how should we handle this situation?

So, let us assume that we are in a situation where a bank is trying to sell us something that we actually did not ask for in the first place. How should we handle it?

We have multiple options… Read on to find out more…

Remember – Safety Deposit Lockers are in great demand. So, these strategies will most likely not work in any bank irrespective of whether it is private or government owned. Home loans on the other hand are a totally different story. Customers who can take home loans are in great demand irrespective of the bank you choose. So, if Bank A wont give you, Bank B will be more than happy to give you a loan. So, don’t get bogged down by unreasonable demands from Banks. Always consult more than one bank and choose the best deal. At the end of the day, you are the customer and they are serving you by giving the loan and not vice versa.

Step 1: Ask them to give it in writing

No bank can actually give you a written statement that suggests that you purchase product X in order to get product Y. In this case, there is no way the bank would’ve given me a letter that said that they would grant me the locker if I deposited 2 lakhs as FD or invested 2 lakhs in some ULIP. Nor will they give the letter to my friend stating that his home loan will be sanctioned only if he purchased a ULIP worth Rs. 50,000/- each year.

Best Case Scenario – The bank staff will sell you the product X that you went looking for – Home Loan in my friends case or Safety Deposit Locker in my case

Worst Case Scenario – The bank staff will refuse to entertain your request and refuse to sell you the item

Most Likely Scenario – The bank staff will try to deviate from the topic and pressurize you to purchase product Y in order to get product X and will not give you anything in writing

Step 2: Tell them you know the banking rules

Tell them that you know the banking rules and regulations in India and hence they cannot sell you such items as bundled packages.

Best Case Scenario – The bank staff will sell you the product X that you went looking for

Worst Case Scenario – The bank staff will refuse to entertain your request and refuse to sell you the item

Most Likely Scenario – The bank staff will try to deviate from the topic and pressurize you to purchase product Y in order to get product X

Step 3: Reject the Offer and walk away

Tell them that you are not interested in product Y. Tell them that you are interested only in Product X and will check out with some other bank if they cant sell just X. convey this message politely and walk away. In all probabilities the bank will contact you in the next few days to sell you just the product X that you asked for…

Remember, if you are earning a good salary and have no history of defaults against loan payments, then you will definitely be able to get a loan with some other bank. The only problem here would be the additional few days of delay. Either you will need a few days to get the loan from some other bank or in the next few days the original bank will contact you. Eitherways you will not be giving in to the unreasonable demands of the bank.

Best Case Scenario – The bank staff will sell you the product X that you went looking for immediately

Worst Case Scenario – Nobody from the bank contacts you and you don’t get the product you were looking for

Most Likely Scenario – The bank staff will contact you after a few days and agree to sell you the product X that you went looking for.

In most cases, step 3 yields better results than steps 1 and 2. But, that does not mean that you go to step 3 right away. Step 3 is the knockout punch. You don’t go for the knockout right away. You warm up the opponent for the right moment and then go for the knockout. In this case, warm up the bank with the first 2 steps and show them that you are not a pushover and will only buy what you want. When they are rattled by your defense, go for the knockout and get what you want…

Lastly, remember that you are the customer and you have the right to choose the product or service you want to buy. Just because I want a home loan that does not mean that the Bank Manager can ask me to buy a ULIP.

Hope you found this article useful…

Happy Banking Folks!!!


  1. I've had some very bad experience trying to open locker. But in case of home loan the scenario was that I am trying to do business for the banks. So the situation was totally different

    1. I agree Rajesh. The problem is, these kind of things happen in areas that arent posh cities where customers are spoilt for choices in terms of available banks. My friend here was at a place that was around 40-50 kms from Vellor and one of my college friends from Dindigul too was sold a ULIP by the bank that gave him the home loan last year...

  2. I have a doubt is bank lockers are safe? WHat if they cheated and run away? Or is there any such problems?

    1. yes bank lockers are safe because the bank CANNOT and WILL NOT open your locker if you continue to pay your yearly rental fees. If you fail to pay the amount, the bank has the right to OPEN the locker and rent it out to someone else.

  3. I have two accounts in two different banks one is SBBJ & another is SBI So can i open ppf accounts in both the banks.

    1. No, you cannot. Read this article: http://anandvijayakumar.blogspot.sg/2012/12/every-question-you-will-ever-have-about.html

  4. I have a problem. Recently I have applied for a home loan and stated earlier was asked to buy a policy to reduce my rate of interest. Earlier I aggred to it but the next day after consulting with my father I disagree to get it and ask the banker to get me the loan without it if he can otherwise I have other banks. So, he agreed to it and the loan was sanctioned but on the sanction letter the policy was mentioned which the banker told me that he will remove. But after a month I see that the bank has disbursed the policy amount and I have to cancel the policy on my own. But I will only get 60k out of 80k on discontinue the policy. I was cheated by the bank. What should I do ? What actions could I take ?

    1. Did you get a written commitment from the bank that this policy wouldn't be issued along with your loan? If you have that document, then you can file a dispute with the banking ombudsman against the bank officials for wrongful selling of insurance products

    2. No, I didn't have any written commitment from the bank regarding this. Can anything be done in this case ?

    3. In such a case, the bank could plead innocence and say customer changed mind after policy was signed which means you have to bear the losses. You can try filing a complaint but it may not end up in your favour

  5. Hello...
    I'm very impressed with your article.
    Can you help me out here:
    My wife is a clerk in the health department in Bihar. She went to the SBI Branch in which she has her salary account and asked for a loan of Rs. 4 lakh. The manager agreed and while submitting the form he tried to convince her to take an SBI LIFE Policy investing Rs. 11167 a year. She made me a call and asked what to do. I was surprised to hear that and asked her to ignore the policy. Before disconnecting the call, she said that she will handle the matter.
    When she returned home she said that the manager told her that it is not necessary to take the policy. So she told him that she will take the policy after the next salary comes to the account. The loan was sanctioned and her account was credited with the amount. But two days later when she updated her passbook, she was angry to see that her account had been debited for SBI LIFE premium.
    She does not know when she signed the Insurance Form and which Policy she took. She quarreled with the manager accusing her of taking the sign secretly under the shadow of the bulky loan application and she could not know which form she was signing on.
    This is a case of forgery and cheating. I think this can be a criminal offence.

    1. Hi - Selling a customer a product which they dont want is definitely forgery and you can firstly return the policy within the first few weeks which is usually a free look period. Secondly you can contact the banking ombudsman or sbi's grievance redressal division and file an official complaint. If this doesnt work you can even try consumer court or contact a lawyer who specializes in financial disputes


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