Retail investors will return if interests are protected: Study

Regulators, financial intermediaries and the Government will have to focus on financial consumer protection if retail investors are to be brought back into the financial markets, an industry study has said.

Many financial services consumers are unable to cope with the unfair service practices being followed by financial service providers, a joint study by Assocham-Brickwork Ratings released on Thursday said.

There is lack of transparency and disclosure, hidden charges, penalties, mis-selling of products, sale of unsolicited products — often by bundling them with other products, improper recovery practices and others, the study said.

It is important for regulators to insist on clear, accurate and balanced messages during the promotion of financial products and services.

This is because consumers are heavily influenced by advertisements while making financial decisions and seeking financial advice, it added.

The anomalies of the Indian financial market have resulted in stock market scams, havoc by NBFCs, mis-selling in Unit Linked Insurance Plans, unexpected returns from equity mutual funds and negative real returns from bank deposits, the study said.

The study titled ‘Financial Consumer Protection — Agenda for Inclusive Growth’ also stressed that India needed to develop good practices on financial education and awareness relating to credit, insurance and private pensions.

Regulators have an increased responsibility to safeguard the interests of consumer as well as the service provider and to inculcate global best practices in the Indian financial system, it said.

Considering that the objective of financial inclusion would be lost in the absence of strong financial consumer protection, it is extremely important to establish efficient grievance redressal systems.

There should also be greater transparency, enhancement in the minimum standards of banking practices relating to customer services and incentivising and leveraging technology for product innovation to achieve financial inclusion, the study said.