Over the past several months, I have described the situation of savers from all possible angles — the hollowness of “know your customer” in financial services; problems of choice; the impossibility of excellence (like Apple or Toyota) inherent in the business model of financial companies; behavioural bias of regulators; regulations not designed to serve savers’ interests; and, finally, how the current business structure in financial services is designed to increase revenues for companies, not the satisfaction of savers. There remains one more aspect that needs elaboration: what happens when something goes wrong? This issue is usually relegated to the background, because nobody wants to deal with problems. Nobody has any use for a complaining saver, who are a small minority and are alone in their fights, their voice unheard. They are a source of irritation for regulators and companies. How can one reduce their issues, assuming that savers are really the reason the regulator and financial services companies exist?
Let us recap my premise of the last few months. As everyone can see, Indian savers have a plethora of choices. If they want a loan, hundreds of banks and finance companies will give it to them. To grow their wealth, pushy bank officials push insurance or mutual funds. Stockbrokers supply them with stock tips. But, as the cross section of real-life stories of the problems Indian savers face in everything from the stock market to timeshares to credit cards to insurance that I highlighted in my last piece showed, there is a deep flaw in the system that leaves many customers at a dead end, feeling cheated and paralysed. If regulators and policy makers want to have a fairer marketplace, they have to start at the other end: they must hear savers’ problems with an open mind, categorise the problems and work backwards.
But, as I pointed out earlier in one of my articles, regulators and policy makers usually talk to the companies (the producers). Talking to market intermediaries is beneath them. And talking to the large unwashed masses of savers and investors – beyond more vacuous “investor education” – is just not on their agenda. A regulator today simply does not interact with savers and hear their issues. There are random meets organised by associations in which some interaction may take place, but these are screened and sanitised not to offend the regulator. What we need is jan sunwais for savers and investors. Given how baffled and exasperated many savers feel, why don’t we already have them?
First, savers are not organised to lobby for it. Second, regulators are simply scared to face savers. They know that people have been rampantly cheated and misled by financial services companies and intermediaries. They know that regulators themselves have been responsible for investors’ massive losses — either because of a flawed regulatory approach or simply because of inaction. For instance, even today, regulators don’t want to see that a disclosure-based regime combined with the principle of “buyers beware” is a recipe for disaster for savers. There is a need for layers of checks and balances, as well as formal and informal pressure points.
Then there is inaction, which is inflicting far bigger losses. In the most backward states of India like West Bengal, Ponzi schemes are flourishing. Over the past seven or eight years, these schemes have raised thousands of crores with promises of guaranteed high returns by dubious methods. They all fall under the Securities and Exchange Board of India’s (Sebi’s) rules that govern collective investment schemes (CIS). But none of the prominent Ponzi schemes has bothered to register with Sebi. Sebi has cracked down on one or two, but they are issuing large advertisements in regional media accusing Sebi of arbitrary and illegal action! They have no intention to return the money, and would probably get away — because politicians (from both the CPM and the Trinamool Congress) support them! Remember, CIS rules came after plantation companies looted savers of hundreds of crores in the mid-1990s with active support from mainstream media. Now Ponzi schemes are doing the same. Yet, there has been no sense of purpose or urgency in Sebi’s actions, under three different chairmen — one of them widely hailed by the media as the messiah of small investors.
Even as regulators and policy makers shirk from a direct interaction with savers, there is an active ongoing interaction with financial services companies. Naturally, their agenda influences the behaviour of regulators. Indeed, far from getting jan sunwais, the same hackneyed ideas of better disclosure, more information, investor education, ways to channelise (sic) savings into markets keep surfacing.
Here is one from last week: the ministry of corporate affairs (MCA) has just set up an experts committee on issues related to investor education and grievance redressal. Its agenda is ambitious: making annual report of companies more meaningful and understandable ... develop financial literacy material ... colour coding of financial products ... a road map for integration of redressal mechanisms of MCA and Sebi ... evaluation of websites that contain best investor-related information ... and so on. It’s the same trite approach: a group of experts, more closed-door meetings, costs funded by taxpayers, more paperwork and so on. The savers’ voice remains unheard.