Deepak Pande, CFP

IIMI Graduate, CAIIB

Former SVP, Axis Bank
 Introduction
 Third Party Products refer to Products sold by the Banks not created by
them.
 Distribution of Third Party Products through Branch Network
Distribution system.
 Investment Privileges to the Banking Customers based on risk profile.
 Unlike Deposit and Advances, these products does not form part of
Balance Sheet.
 No Capital Risk Weight is required for selling Third Party Products.
 Selling of Third Party Products generate fee based income for the
Banks.
 Selling Third Party Products mean providing one stop Financial shop
to its customers.
 Third Party Products
 Life Insurance and non-life Insurance Products
 Bullion Products
 Mutual Funds
 Retail Broking Services
 Primary and Secondary Market Bonds
 Alternative Investment Products
 Collection of Taxes and Utility Bills
 Mobile Recharge
 Advantages
 Banks earns sizeable income by selling third party products that adds to their
bottom line
 Penetration level for insurance and investment products is very low, providing
a big opportunity to Banks
 More than 50% of the savings is with the Banks in the form of Deposits,
thereby it becomes a lucrative opportunity for insurers and AMCs
 Since Banks get readymade/tailor-made products from Insurers and AMCs,
these could be easily distributed through branch network
 Banks as Distributors contributes significantly to Insurance as well as Mutual
Funds Business
 Third Party Products could help building a sales orientation for the Banks
 Disadvantages
 Bullion Bars were imported for selling to the customers, thereby converting
savings into dead investment
 Focus of the branch distribution channel on cross-selling TPPs takes a lot of
time that has not been quantified
 Ever changing dynamic financial world, it is difficult for sellers to keep track of
product nuances resulting into mis-selling
 Earning of hefty income shift the focus of Banking staff to selling TPPs rather
than focussing on core Banking products
 RBI recent guideline puts onus of mis-selling on the Banks and regulatory
action may be initiated
 RBI Wealth Management guidelines stipulates arms length distance between
TPP Subsidiary/Division and the Bank
Competitive Offerings by different
types of the Banks
Products and Public Sector Private Sector Foreign Banks Private Sector
Services Banks Banks (New) Banks (Old)

Bullion Low rates High rates Not selling Higher rates

Retail Broking AMC Charges No Opening No Opening Opening,

& Txn Charges Fees Fees AMC & Txn
Charges
Mutual Fund MF Subsidiary MF Subsidiary Other AMCs Other AMCs

Insurance (LI Ins Subsidiary Ins Subsidiary Bancassurance Bancassurance

or GI) or tie up or tie up tie up tie up
Wealth A few Yes Yes Not Offered
Management
 Risks Associated with Selling TPPs
 Operational Risk
 Reputational Risk
 Credibility Risk
 Knowledge Risk
 Liability Risk
 Opportunity Risk
 Market Risk
 Interest Rate Risk
 Stock Market Risk
 Regulatory Risk
Mis-selling Cases in Banks

 Insurance misselling to Senior Citizens

 Bank’s aggressive selling subsidiary products when
availing a loan or hiring a locker
 Customers persuaded to move funds from FDs to
ULIPs of LI Companies
 Accidental Insurance Form signed with Account
Opening Form
 Bank approach has been Product-centric or Bank-
centric rather than Customer-centric
 Unauthorised debits from Customer accounts
Mis-selling Cases in Banks Contd…

 Life Cover for Home Loans through misrepresentation

 Aggressive Selling by Banks on account of
incentives/foreign trips on achieving a certain level of
business
 Persuaded to buy a LI Policy when approached for
Fixed Deposit by promising higher returns
 Bank Employees getting emotional for helping them
out in attaining individual targets
 Selling MF Products with lock-in period of 3-5 years
when funds invested for liquidity
Regulatory Compliances - Insurance
 Banks undertaking Insurance Business may do so only
through a Subsidiary or JV other than Corporate Agency.
 Banks undertaking Insurance Agency Business should
formulate Board approved policy for distribution of
Insurance Products.
 All employees dealing with Insurance Agency Business
should possess requisite qualification prescribed by IRDA.
 Product Suitability Matrix for Customers
 No incentive (cash or kind) be paid directly to the Bank
staff by the Insurance Company, who are engaged in
selling Insurance products.
Regulatory Compliances - Insurance
 KYC/AML guidelines to be followed for Insurance
customers as well.
 Banks should not link sale of Insurance Products to
any other Banking Products.
 Insurance Business Income to be disclosed in the
Notes to Account to the Balance Sheet.
 Internal Customer Grievance Re-dressal Mechanism
should be put in place along with Board approved
Customer Compensation Policy.
 Violation would invite penal action against Banks.
Regulatory Compliances - MF
 Banks should act as an agent of the customers for MF
Sale.
 Purchase of units should be at customer’s risk and
without Bank guaranteeing any assured return.
 Bank’s should not acquire units of MFs from secondary
markets nor buy back units from the customers.
 Credit Facility against units of MF or securities should
be in accordance with extant RBI guidelines.
 All employees dealing with MF Business should
possess AMFI MF (Distributor) Module Certification.