Listen to this articleIn the past, being a bank employee was synonymous with prestige and respect, especially for a bank manager, who was often seen as a figure capable of granting loans like a deity.
Even though the youth’s attention may have shifted towards the world of software today, does the allure of white-collar jobs with handsome salaries, defined working hours, low-interest loans, domestic and international travel, multiple holidays, and pension schemes still make banking jobs highly competitive?
In the past, the core functions of banks involved accepting deposits, issuing loans, providing drafts to support business transactions, managing their repayment, and offering locker facilities at specific branches.
However, as the number of banks increased over time, and interest rates declined, the net interest income (NII) of banks began to decrease, impacting their profitability.
To address this and several other factors, starting August 3, 2000, the sale of insurance products was integrated into banking services, giving rise to Bancassurance. But, is this shift enough to maintain profitability and relevance in a competitive market?
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Bancassurance
Bancassurance is an agreement between banks and insurance companies where banks sell insurance products. It helps banks generate additional revenue through commissions.
Based on the premiums generated, insurance companies pay commissions to the banks. The commissions and fees provided by insurance companies served as a valuable source of profit for banks, helping them maintain profitability.
With an extensive branch network across the country, a large customer base, unwavering trust in banks, and skilled employees, banks were in an ideal position to facilitate the sale of insurance policies.
For customers, the convenience of having both banking and insurance services under one roof was undoubtedly a major advantage. But, could this synergy between banking and insurance be the key to sustaining growth in a competitive market?
Income from Insurance
By offering their products to customers, insurance companies provide banks, acting as corporate agents, with a significant upfront payment. In addition, banks receive commission payments based on the premiums collected.
However, banks do not simply pass on this income to their employees. These benefits are also provided in the form of foreign trips, gift cards, and even as qualifications for promotions.
These incentives, aimed at boosting employee enthusiasm and motivation, eventually became a tool to assess their annual performance.
Even employees who were not financially driven were pressured to sell insurance to innocent customers, in order to secure good ratings and meet their targets.
But, is it right to push employees into selling insurance, especially when bank employee unions have consistently argued that it’s not part of their core responsibilities?
Many bank employees are reluctantly involved in these activities due to pressure. Shouldn’t there be a more ethical approach to aligning employee targets with the customers’ best interests?
The Pressure of Selling Insurance
One employee shares, “We’re under intense pressure to sell insurance. In zonal and regional manager meetings, most of the questions are about selling insurance, or cross-selling, rather than focusing on banking operations.
Banks push employees to sell insurance to boost their revenue from commissions, especially when traditional banking profits have decreased.
Employees who don’t meet their targets face repercussions from the officers.” Is this really the best way to motivate staff?
For centuries, the only way banks could increase profits was by boosting their net interest margin (NIM). But in today’s competitive environment, isn’t it a challenge for banks to raise interest rates on deposits while also lowering loan rates?
As a result, isn’t it inevitable that net interest income would start to decrease? In such circumstances, what other option do banks have to maintain profitability but to rely on commissions from insurance companies?
And since bancassurance doesn’t carry the same risks as bad loans or excessive expenses, isn’t it no surprise that banks have begun giving it more priority?
Unethical Practices
As banks pushed to increase their insurance business, many customers, who had no need for insurance, ended up being exploited.
It is unethical to sell insurance to customers who don’t need it or can’t afford it, as this compromises customer trust and financial well-being.
Isn’t it concerning that insurance is being sold in banks without even considering whether customers can afford the next premium?
At its peak, there were incidents where bank staff collected signatures on insurance applications without informing customers, under the pretext of applying for fixed deposits.
Isn’t it alarming that customers were forced to buy insurance just to secure a loan? While this might be a harsh reality, can we ignore the fact that it’s still happening today?
With a surge in insurance sales, complaints arose about banks collecting additional fees from insurance companies, beyond the usual commissions. Is it ethical for banks to charge insurance companies for covering the cost of staff handling insurance policies?
Moreover, banks took money from insurance companies, promising to conduct awareness campaigns at branches across the country, only to fail in carrying them out. Is it right for banks to charge double the amount to place insurance advertisements in their branches?
These actions have raised the cost of insurance operations. The tax department is now investigating two major private banks for discrepancies in income tax payments related to these charges. What does this say about the transparency of the insurance sector?
Excessive Nectar
Recently, the Finance Minister advised, “Banks should prioritize their own funds; they must not engage in improper selling of insurance.”
The Chairman of IRDAI, Debashish Panda, expressed concern over numerous irregularities in bancassurance. “The relationship between banks and customers is one that spans generations.
Trust must be maintained, with banks providing essential financial services at the right price. Banks should focus on their core operations while keeping insurance management in check. Customers should not be pressured or misled into buying insurance,” he stated. The new Chairman of State Bank, Salla Banivasulu Chetty, also emphasized that banks must focus more on growing their deposits.
There is no doubt that for a nation’s economy to thrive, its banks must effectively deliver diverse services to the public. However, isn’t it essential that these services are provided fairly and transparently?
Focusing solely on profits without adhering to ethical practices tarnishes the industry’s reputation. Wouldn’t that lead to a breakdown in the trust that has been built over generations?
Final Takeaway
Bancassurance can be a valuable revenue stream for banks, but it’s crucial that banks prioritize ethical practices and customer welfare. The pressure to meet sales targets should not compromise transparency and trust.
By focusing on core banking services and ensuring customers’ needs are met fairly, banks can maintain long-term success, avoid exploitation, and uphold the trust that has been built over generations. Ethical operations are key to sustaining growth.
