Opening a bank a/c? Buy insurance first!

[K.Karthik Raja]

Opening a bank a/c? Buy insurance first!

Here's a simple question. When you approach a bank for opening a
savings bank account, what do you expect to get? The most obvious
answer is a savings bank account, i.e. a passbook, a chequebook, a pay-
in slip and an ATM card (high service standards might be stretching it
a bit too far). Right?

Wrong! The first thing you will land up with is an insurance policy,
and then the rest will follow. Confused?

What does an insurance policy have to do with a savings bank account
you might ask; the two are completely unrelated. The author of this
article was of similar view until he visited a bank.

The bank in question ranks among the premier public sector banks in
the country. When a local branch in suburban Mumbai was approached for
opening a savings bank account, the bank employee claimed that buying
an insurance policy would be 'necessary,' since a scheme to that
effect was in operation.

The insurance policy is from an insurance company, which is a joint
venture between the bank and a foreign entity. On enquiring as to why
it was necessary to buy a life insurance policy, the bank employee
simply retorted that it was because of the scheme. This was followed
by a veiled threat that failing to buy the life insurance policy would
mean that the account opening process could stretch over a 3-month
period.

Of course, the bank was not in a position to produce any guideline or
notification from the Reserve Bank of India [Get Quote] or any other
competent authority to validate its claim that buying a life insurance
policy was mandatory.

When the branch manager was approached, he grudgingly agreed that
there was no obligation to buy a life insurance policy. Of course,
that did not deter him from putting up a strong case for forcibly
selling insurance policies.

First, he chose to run down private sector banks and pointed out how
maintaining a rather high minimum balance at all times was necessary
therein; in his view, the insurance policy was a better trade-off!
Secondly, he also chose to eulogies the importance of insurance and
how the same would actually be in the author's best interests.

Finally, while the author managed to avoid the life insurance policy,
others who failed to put up a resistance weren't as lucky. A number of
individuals meekly followed the bank's unfair diktat and signed up for
insurance policies that they perhaps didn't need in the first place.

We would like to clarify that this instance was specific to the branch
in question and not an across the board policy with the bank i.e. when
we visited other branches of the same bank, we did not encounter the
requirement for a buying a life insurance policy.

However, that doesn't take away the gravity of the situation or the
bank's onus to ensure that fair practices are followed in all its
branches. There are a couple of points that make this case pertinent.

First, arm-twisting an individual into buying life insurance policies
for the sake of a savings bank account is unfair and completely
unacceptable. The bank's prospective customers certainly deserve a
better deal. It's a different matter if the bank chooses to offer
insurance (among other) services to them. In such a situation the
customer can use his discretion to make a choice.

But to make buying insurance policies a mandatory requirement and
threatening customers with an inordinate delay in opening the account
is just not banking!

Second, most individuals who are forced into buying a life insurance
policy end up buying a policy with the least premium payment (and
thereby with a lower insurance cover).

This is only to be expected; let's not forget that the compulsory life
insurance policy is seen as an unwanted obligation. Incidentally,
instead of explaining what the insurance policy has to offer, the bank
chose to highlight the affordable annual premiums.

Buying insurance is all about assessing one's needs and then
determining the appropriate insurance cover and product. By selling
insurance based on premium payments, the bank was indulging in mis-
selling and contributing to the most common evil plaguing the
insurance sector.

So what should you do, if you find yourself in a similar situation?

For starters, don't accept such unfair treatment; stand up to it.
Don't hesitate to contact a senior official from the bank/branch and
present your case. If that doesn't help, approach the RBI.

The RBI has instituted The Banking Ombudsman Scheme, to provide
individuals with a forum for filing complaints against banks.

For far too long, individuals have been at the receiving end of unfair
practices from various entities in the financial services industry.
Now it's time to stand up and be counted!