"Financial consumer is struggling to cope up with unfair service practices by financial institutions such as lack of transparency and disclosure, hidden charges, penalties, misselling of products, sale of unsolicited products-often by bundling them with other products, improper recovery practices and others," Assocham Secretary General D S Rawat said.
"Regulators need to play a dynamic role in strengthening financial regulation while also empowering consumers through awareness initiatives," he added.
Focus on financial consumer protection is crucial for the government, regulators and financial intermediaries to bring back retail investors into the financial markets, the study said.
The anomalies of Indian financial market have resulted in stock market scams, NBFC (Non-Banking Financial Company) havocs, misselling in Unit Linked Insurance Plans (ULIPs), unexpected returns from equity mutual funds and negative real returns from bank deposits, it alleged.
"It is important for regulators to insist for clear, accurate and balanced messages when promoting financial products and services as consumers are heavily influenced by advertisements while making financial decisions and seeking financial advice," said the study.
"India needs to develop good practices on financial education and awareness relating to credit, insurance and private pensions together with inclusive growth to stem the rot, provide employment and successfully tread the growth path," it suggested.
There is also a need for adequate consumer protection and financial literacy for long-term stability of the financial sector, as protecting illiterate poor people from the traps of misselling is as important for wealth generation as access to financial services, said the study.
Financial markets players and regulators need to build confidence in consumers as they often do not understand the complexity of the products and are not sure if the products are suitable for them considering their investment life cycle, risk aversion, capital and liquidity needs, it said.