Commissions to own subsidiaries makes mis-selling by banks
Commissions to own subsidiaries which makes mis-selling by banks
The numbers from FY24 commissions show a massive reliance by banks on distribution income — especially from their own subsidiaries which makes the “mis-selling” concern very real. Let’s break it down:
1. HDFC Bank alone earned nearly 30% of the total commissions (INR 6,467 cr out of INR 21,773 cr).
2. SBI + Axis Bank + HDFC Bank together account for ~63% of the pie.
3. Subsidiary-dependence is glaring:
o Kotak Mahindra Bank: 100% from Kotak Life Insurance.
o Canara Bank: 99.1% from Canara Robeco MF. This raises direct conflict of interest concerns.
4. Public sector banks (PNB, BOB, Canara, Union, Indian Bank) earn less compared to private giants, but still show patterns of in-house bias.
5. Smaller private banks (Yes, Federal, IDFC First) are aggressively building this stream, despite weaker balance sheets.
The Core Issue
Banks are supposed to advise and protect customers’ financial interests.
But if employees are incentivized to push in-house products with high commissions, then:
Customer needs may be ignored.
Products with poor suitability (e.g., expensive ULIPs, long lock-in insurance) may be pushed.
Trust in the banking system could erode.
Possible regulatory responses could include:
1. Disclosure mandates – Banks must declare % of commissions from group entities.
2. Cap on related-party distribution – Limit how much a bank can sell of its subsidiary’s products.
3. Suitability norms – RBI/IRDAI/SEBI could enforce stronger “customer-first” checks (like fiduciary responsibility).
4. Commission transparency – Customers should know exactly what commission the bank earns from the product they’re sold.
5. Incentive reform – Shift from commission-based to advisory fee-based distribution.
The numbers highlight that commissions are not small “side income” they are a structural revenue stream. But if left unchecked, this model risks mis-selling, loss of customer trust, and systemic reputational damage for Indian banks.
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