Ease of Doing Business – Banking and Insurance Industry

Ease of doing business is one of the key initiatives of Modi administration. It is not one wing of Government and industry or sector regulator which has to work in sync but entire set up and contributors to economy have to work as well-oiled machinery. In case some sectors or departments are not aligned then entire initiative suffers. 
Here we are looking at how banking and insurance sector has fared in this regard. 
Banks are backbone of our economy and contribute to sustained growth of entire business environment. An advanced and industry friendly banking industry becomes engine of growth of any economy. Banks have to provide necessary support and liquidity to business and make sure that cost of transactions does not go up. Introduction of the Insolvency and Bankruptcy Code with an aim to promote entrepreneurship and protect interests of investors has eased the process of resolving insolvencies, which was earlier a long-drawn process and is a welcome step in promoting ease of doing business. 
Hence, banks have a larger role to play for success of ease of doing business initiative. 
Likewise, Insurance Sector also plays a pivotal role in sustained development of economy. Just like banking it helps in mobilising domestic savings, mitigating losses, provides financial stability and security, promotes trade and commerce which collectively help in economic growth.  Federal government also encouraged investment in insurance sector by increasing foreign direct investment to 49%, which led to many large players set up joint ventures in India. 
However, many Indian banks are facing number of challenges. Non-performing assets (NPA) sitting in books of many banks are biggest dampeners. To show better performance and compliance with regulatory laws some banks have not reported true status of NPAs but painted rosy pictures after window dressing leading to false sense of security among investors and regulators. However, when caught by the Reserve Bank of India (RBI) or by auditors, such banks have suffered heavily causing a loss of investors wealth and erosion of faith of public. Some citizen groups and individuals have filed many applications under the Right to Information Act (RTI) or pubic interest litigation in courts seeking information of true status of financial health of banks and financial institutions. In a very recent ruling Supreme Court has come down heavily on RBI for not sharing inspection report of banks under RTI to applicants.  
Few years back many banks were also facing liquidity crunch. However, with de-monetisation of INR 500 and INR 1000 currency bills, large amount of cash have been deposited in banks providing much needed liquidity to banks and denting parallel economy. However, on account NPAs and fear of losing money in funding high risk or long gestation projects, banks are treading very carefully and slow in approving projects. While on one hand government is pushing for faster growth of economy and easing regulatory environments on the other hand banks and financial institutions are treading carefully and slowly.  
Similarly insurance sector provides necessary security to individuals and industry and contribute to growth of economy. On account of intense competition insurance companies are aggressively chasing growth. However, to achieve higher profitability while at the time of issuing insurance cover false promises are made to insured but in an unfortunate situation giving rise to claims, same insurers take shelter in fine print in insurance cover and adopt all kinds of tactics to reject or delay sanction of claims. This has contributed negatively to ease of doing business. 
Another trend is being noticed where many banks have also set up subsidiaries and group companies in related sectors like insurance, non-banking financial institutions and asset management companies. This has led to the vice of cross selling services and products of group companies. Most of these banks and their group companies are following policies of giving cross selling targets to junior and mid-level managers and their increments and bonuses are decided on basis of achieving cross selling targets, which is major cause of frauds committed on their customers.  
A live case of one non-resident Indian who is an American citizen suffering at the hands of one of the largest private sector banks having group companies in insurance, etc., is the best example. And he is not alone in this category. This person has opened account with bank during one of his visits to India. On the insistence of branch manager of bank during subsequent visit to India, this person has agreed to open fixed deposit. However, he was made to sign blank documents and provide large number of details of his family and tax in the USA on the pretext of making his minor daughter nominee. Subsequently he got to know that his account has been debited by two entries of the same amount – one for fixed deposit and another for buying insurance policy from another group life insurance company for whom such bank is acting as insurance agent. On persistent follow up and initially holding up of no mis-sale bank and insurance companies agreed to cancel policy and reverse funds but insisted upon filing a claim to be decided by them. On a complaint to senior management and board of directors of both entities nothing has been done. Further, on a complaint to Insurance Regulatory Authority (IRDA) and bringing all facts with evidence to its notice with the request to initiate investigations of wrong doing and violation of Insurance Act and other legislations and cancellation of insurance license to insurance company and agent license of bank, IRDA refused to do any thing on the ground that it does not adjudicate customer complaints. This is unfortunate response from IRDA, being regulator of insurance industry. Further, RBI and Insurance division of Finance Ministry is also not alive to cheating of customers by such rogue elements. It is high time both RBI and IRDA investigates following of such predatory HR policies of cross selling by banks and insurance companies. Further, authorities under the Companies Act and Securities and Exchange Boards of India Act should also provide for mandatory compliance with such matters under corporate governance policies enforced by regulators under these legislations. 
In case proper governance policies are implemented and strictly monitored by regulatory authorities, banks and insurance industry will become once again engine of growth and major contributor to success of ease of doing business initiative. All that needed is concerned efforts by banking and insurance industry and strict enforcement by government and regulators. 
About the Authors 
Ashok Dhingra , Founder and Managing Partner, Ashok Dhingra Associates, is an Attorney having more than 42 years of experience. He is ranked among the best GST; erstwhile Indirect Taxes; Customs and Trade Laws including Export Controls and Sanctions Attorneys in India. He is also considered an authority on Supply Chain; Prevention of Money Laundering; Anti-Corruption Laws and White-Collar Crimes. 
Sonia Gupta, Partner at Ashok Dhingra Associates is Chartered Account and Attorney. She primarily focuses on Customs and Trade Laws including Export/ Import Controls and Sanctions; Foreign Trade Policy and Regulatory Laws, providing both advisory and litigation services to clients. 
Authors are partners with Ashok Dhingra Associates, Attorneys At Law, and views expressed are personal.