Misled and Mis-sold: Financial Misbehaviour in Retail Banks?
Misled and Mis-sold: Financial Misbehaviour in Retail Banks?, Monika Halan and Renuka Sane NIPFP Working Paper 174, August 2016.
We use an audit methodology where auditors ask for tax-saving instruments from banks and document the disclosures made on product features at the time of sale. In private sector banks with high sales incentives, the high commission product is recommended. In public sector banks, where there are deposit mobilisation targets, fixed deposits are recommended. Banks rarely make voluntary disclosures on product features. When specifically requested, information provided is inaccurate or incomplete. Our results demonstrate the challenges of mandating disclosures when buyers have little understanding of the relevance of product characteristics, and distributors are themselves ignorant or influenced by incentives.