INDIA – Banks face RBI curbs on insurance products??? sale
Banks may face fresh curbs on sales of third-party insurance products, according to sources in the banking industry. The restrictions could be brought in after RBI releases detailed guidelines on distribution of third party products by June end. Cash investments in third-party insurance products may also be restricted.
An investigation by RBI into Know- Your-Customer (KYC) procedures followed by banks has found grey areas in the sale of insurance products. It was found that while banks are selling third-party insurance products, proper KYC procedures were not followed at the time of the sale.
Sources say banks only act as front end for selling third party insurance products and the onus to meet KYC norms lies on the insurance companies. However, in many cases, it has been found that neither the insurance company nor the bank completed KYC procedures.
To plug the loophole, sales may be restricted to existing customers of the bank where KYC procedures have already been completed. This would prevent banks from selling these products to walk-in customers.
RBI probe into banking operations was initiated after Cobrapost reported banks were facilitating customers in laundering money by allowing them to invest cash directly into insurance policies without following proper procedures. Sources, however, maintain no evidence to prove the charge of money laundering.
Banks also defend charges that they were suppressing suspicious transaction reports. Internal systems throw up a large number of suspicious transactions on a regular basis, they explain. These transactions are then referred to line managers, who conduct manual checks.
Transactions are reported to RBI or other relevant agencies like CBDT only if the line managers find enough reason for suspicion.
Sources say even when transactions are reported to agencies like CBDT and Financial Intelligence Unit (FIU), action is rarely taken since neither agency has the wherewithal to investigate the large number of cases referred to them, specially when the magnitude of transaction is not large. This has raised questions in the government circles on whether the supervisory mechanism, both within RBI and government needs to be strengthened along with tightening procedures followed by banks.
