Sucheta Dalal :Wake-up call for regulators
Sucheta Dalal

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Wake-up call for regulators  

January 19, 2011

When is the last time that SEBI has bothered to hold a discussion on how to make PMS fairer and more transparent for investors?

The Rs400-crore fraud by Shivraj Puri, a relationship manager at Citibank, ought to be a wake-up call for Indian regulators. One of the victims has attempted to globalise the issue by depicting it as a ‘systemic failure’. If, indeed, it is a systemic failure, then it is a domestic one about how Indian regulators have allowed relationship and wealth-management executives of banks to rip-off high net worth investors (HNIs) with impunity. If there was a systemic failure at Citibank, it was in the fact that executives like Shivraj Puri, who earned fat commissions for the Bank, were left relatively unsupervised and unchecked. The same is true of several other entities. If regulators read the anguished reactions to our articles ( on portfolio management schemes (PMS) and wealth-management services, they would wake up to how investors are systematically lured into subscribing to schemes that yield high commissions to banks and incentives for their executives. Take the case of Rajan Manchanda who discovered that Kotak Bank made a whopping Rs1 crore by hustling him into buying its India Growth Fund from a group entity. He was told that it was a discounted offer from a distress seller. His description of how he was sold a lemon, smacks of a conman’s hustle, rather than the behaviour of a wealth-management executive. Worse, Kotak’s top management is standing by the actions of the executive. There are thousands of such examples of bankers, whom you are supposed to trust, taking customers for a ride. But the Reserve Bank of India (RBI) is unmoved. Here are a few victims who describe how they were cheated:

• One advises that “PMS is a one-way street for making money and investor is on the wrong side of that street. Investing in MFs is better than PMS in more ways than one. In PMS, investor has to pay tax for the short-term gains (if any), has to maintain records of long/short-term gain/loss figures at the time of advance tax and filing returns, even when you exit (in cash or scrip transfer). When there is death of a holder, it gets more cumbersome since one is required to open a new demat account (non pool) for PMS. It is a thumbs-down from all angles.” When is the last time that the Securities and Exchange Board of India (SEBI) has bothered to hold a discussion on how to make PMS fairer and transparent for investors and to help them make informed decisions?
• A banker who has worked at Kotak and HSBC says his job was to pitch for Tata AIG unit-linked insurance plans (ULIPs), which fetched a commission of 30%-50% for the bank at the cost of investors. These were sold to the old people as insurance.

• Here is what one really angry investor says, “RMs (Relationship Managers) are the smartest tricksters moving and breeding on Indian banking soil (rather granite floors). They get their salaries from the banks and kickbacks (respectably named incentives or target bonuses, etc, in various forms and hues) from the fund houses and ULIP companies. And when it came to problem (even of their own making) solving, it took me about three months of frantic persuasion through emails (I reside overseas) to get it resolved by one of these banks with at least four different persons from their so-called customer services cell appearing on the scene and driving me mad…”.
Are SEBI and the RBI listening?—
Sucheta Dalal

-- Sucheta Dalal