When Banks Cheat Customers

Stan chart robs a doctor in Kolkata with churning and forgery. Will RBI act?

Dr Abhik De, a highly qualified doctor in Kolkata, had an account with Standard Chartered Bank. Since 2005, the Bank also managed his mutual fund investment which was Rs1.56 crore in 15 schemes. In a 19-month period after May 2008, Stanchart switched and churned his portfolio over 200 times causing a massive loss of Rs68.28 lakh. In so doing, the Bank often forged signatures on transaction slips. At least 50 transactions in July-August 2009, all loss-making, were a give-away since he was out of the country. Dr De confirmed the forgery by writing to each mutual fund and seeking photocopies of transaction slips. Dr De says that some of the forged signatures were even attested by Stanchart officials. When he complained, the Bank initially dismissed his complaint as false and frivolous. 

A reckless churning of mutual funds to earn commissions as well as entry- and exit-loads can only happen when there is a nexus between ‘wealth managers’ and the fund managers. Dr De complained to the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) but got nowhere. Over the past four years, he has slowly gathered enough evidence to file a police complaint.  

Dr De describes the attitude of regulators succinctly and colourfully. He says, “If a person is murdered with an unlicensed revolver, the judge does not ask for the source of the weapon. He conducts a murder trial.” Our regulators have all been focused on trivial technicalities rather than justice even when violation of their own regulations is very clear. 

Stanchart’s actions are a direct violation of SEBI’s prohibition of fraudulent and unfair trading practices regulations, as well as the code of conduct for mutual fund intermediaries. Readers would recall that Moneylife’s relentless pressure ensured SEBI action against HSBC in a similar case of churning involving singer-actress Suchitra Krishnamoorthi. The actress was eventually paid Rs1.3 crore by HSBC as a settlement. But SEBI has done nothing to help Abhik De.

Finally, the Kolkata police registered a first information report (FIR) based on his complaint in 2014. It caused Stanchart to wake up at long last. The Bank sacked its relationship manager and unilaterally transferred Rs35 lakh into Dr De’s account (November 2014) calling it a “full and final satisfaction of all claims, demands and contentions raised by you.” Adding insult to injury, it called this a “goodwill gesture to maintain cordial relations” with its victim. Obviously, Dr De is in no mood to accept or give up the battle. 

The question is why did RBI fail to redress the complaint? An ordinary consumer who cannot repay a small loan or defaults on credit card is declared a defaulter and his financial life is crippled. But a bank decimating a person’s savings through mis-selling faces no action. The collective clout of banks has swung the pendulum of justice far against the ordinary consumer. This cannot go on. RBI’s consumer charter, issued in 2014, is supposed to protect people from such brazen mis-selling. RBI must make an example of Dr De’s case. Awarding exemplary punishment will show that it is serious about fair treatment of consumers.

Article by Sucheta Dalal