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  1. RBI looks to limit customer liability in banking frauds

RBI looks to limit customer liability in banking frauds

Reserve Bank of India (RBI) deputy governor SS Mundra on Monday said the central bank is examining whether to issue regulatory directions with regard to limiting liability of customers on fraudulent transactions arising out of frauds and electronic banking transactions.

By: | Mumbai | Updated: May 24, 2016 10:04 AM
RBI August 9 monetary policy review Mundra pointed out that there has been increasingly large number of cases of mis-selling of third party products to customers by banks, particularly insurance products, including bundling of third-party products with loans. (Reuters)

Reserve Bank of India (RBI) deputy governor SS Mundra on Monday said the central bank is examining whether to issue regulatory directions with regard to limiting liability of customers on fraudulent transactions arising out of frauds and electronic banking transactions.

“This is a work in progress and we expect to come out with the final framework very soon,” the deputy governor said. Mundra was speaking at an event organised by the Banking Codes and Standards Board of India.

Mundra pointed out that there has been increasingly large number of cases of mis-selling of third party products to customers by banks, particularly insurance products, including bundling of third-party products with loans.

He cited an example of a fraud case with a senior citizen — a retired general manager of a private sector company who had invested in retirement benefits in fixed deposits with a private sector bank.

“He was convinced by the bank’s representative to invest R2 lakh in an investment scheme, assuring that his fund would get a minimum 11% interest and there would be no deduction of income tax upon withdrawal after three years,” Mundra said. “Another representative from the same bank visited the depositor after one year from the initial investment and convinced him to prematurely close three FDs amounting to R7 lakh and invest the proceeds in the same scheme.”

“After completion of three years, the customer found he had earned only about 3.5% in the first investment and earnings in the second investment was even less than 1%. The representative was no longer with the bank, and the customer was in a hapless position running from pillar to post and knocking the doors of the authorities. This is a clear case of mis-selling of a product which was not suitable to the needs of the customer,” Mundra observed.

The deputy governor asserted it would be appropriate for banks to put in place a system of periodic inspection of sale of third-party products.

“Seek a specific separate meeting with the top management of your organisation. Share these instances with them, tell them what I have mentioned. We would be giving some time to see that the necessary corrections are put in place,” he asserted and warned that there would be very serious actions with heavy penalties if the necessary steps are not taken.

He also indicated the need to take action against money muling or illegal transfer of money using an idle account.

Speaking on differentiated licences, Mundra said there are views that there can be room for some more categories of differentiated licences, but the entire thing is still at a very early stage.

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