Some banks use \\\'pressure tactics\\\' to sell policies of directors\\\' Ins cos

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Syful Islam | Published: December 23, 2013 00:00:00 | Updated: November 30, 2024 06:01:00

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Some banks are allegedly forcing borrowers into buying insurance coverage from the companies owned by their (the banks') directors, sources said.
Recently, a group of businesspersons sought intervention of the Ministry of Finance (MoF), the Bangladesh Bank, and the Insurance Development and Regulatory Authority (IDRA) to save them from the mandatory buying of policy from insurance companies owned by the directors of the banks, from which they took loans.
Chairman of IDRA M Shefaq Ahmed told the FE that there were specific directives as to how much volume of business the insurance companies could carry out with the other companies, which their directors own. Some companies are allegedly violating the rules, "but we are closely monitoring it".
He said some insurance companies avail the scope of persuasion to have policies with them if their directors own banks. In that case, the banks concerned play an active role in providing them with business opportunities.   
"We have earlier informed Bangladesh Bank about such activities. Action will be taken, if specific allegations are found against any insurance company," the IDRA chairman said.
According to a group of borrowers, some banks force them into buying policies from the insurance companies of their choice.
"Some banks even have issued circulars from their head offices asking the branch officials to ensure that borrowers and letters of credit (LCs) openers buy policies from the insurance companies owned by bank directors," a trader told the FE wishing not to be named.
He said in some cases, branch officials of the banks renew the terms of insurance coverage and debit premium from bank accounts without taking permission from borrowers or clients.
As in this case the owners of banks and insurance companies are the same persons, the bank management has nothing to do but follow the instruction of the directors, he added.
Former Deputy Governor of Bangladesh Bank (BB) Muhammad A (Rumee) Ali has termed the act illegal, and said no bank can force any borrower into buying insurance coverage from any particular insurance company.
He said what the banks could do at best was provide a list of insurance companies, whose coverage they would accept.
"But specifying any particular insurance company is not acceptable," he added.
The former BB Deputy Governor said the central bank should issue a guideline in this connection, so that the banks cannot force the borrowers into buying coverage from any particular insurance company.
When contacted, Executive Director of the central bank Sudhir Chandra Das told the FE Sunday they had been informed about this practice resorted to by some banks.  
"We have been informed that such a thing is taking place. But there is no documentary evidence that banks are forcing the borrowers into doing that. That's why we can't take any action," Mr Das said.  
He however admitted that it had now become a common practice since many bank owners also owned insurance companies.
"At meetings with both the bank owners and bank management, we ask them not to force any borrower into buying insurance coverage from the companies of their choice. We have nothing more to do except resorting to moral suasion," Mr Das said.