HSBC’s Wealth & Personal Banking division Closes

India’s largest distributor of Mutual Funds HSBC has closed down its wealth and personal banking division due to growing customer backlash. Note Asset Management Companies in India are poor performers charging very high expense fees. They mainly depend on distributors to sell mutual funds to retail investors who are highly suspicious of the equity market. Given the hazards of investing in Indian stock markets this is not at all surprising. Most of the personal and wealth bankers in the country mostly mis-sell financial products to citizens who are not financially literate. They mostly go by the words of the bankers since big banks like HSBC, HDFC and others have recognizable brand names. However there are a lot of bad mice in the industry and Citibank was in the news for defrauding a top Venture Capitalist. Note if a financially savvy investor could be defrauded by the wealth bankers, then the state of the layman can be guessed.

HSBC found a large number of customer complaints and rampant misspelling of products by the Indian division. Churning of mutual fund portfolios without any rhyme or reason is the favorite tactic of the bankers. Investors not knowing better go along with these bad practices. Maybe with HSBC shutting down the division, other banks will clean up their act. However I doubt that will happen.

Private Banking in India – Another corruption ridden sector

Note Real Estate, Telecom and a number of sectors in India are notorious for the corruption and graft in their dealings. Now Private Banking also joins this infamous bandwagon. Recently a Citibank manager was caught defrauding wealthy customers and companies millions of dollars through stupid investments in stock futures. Some of the company officials were complicit in the fraud. Now Standard Chartered another foreign bank with a big presence has been caught doing the same thing. Note a lot of customers are not that knowledgeable about finance and financial products which have numerous regulations and hidden rules.So cheating is not that difficult for corrupt bank officials. Standard Chartered has been caught in illegally buying up shares in an Indian bank through unethical means as well. Note these banks have been instrumental in causing the Great Financial Crisis in 2008 which led to a huge economic collapse. Now these banks have started their shenanigans in India as well. RBI is right in not granting these banks faster access to India’s financial markets despite strong political pressure from the West. It would not hurt to slap these banks with huge penalties and ban them from opening more branches in India. Putting a small penalty will not deter them from future fraud.

Why not to invest in Mutual Funds in India

I have always said that investing in Indian mutual funds is a dumb idea given the lack of regulation, under performance, high fees and front running and fraud conducted by mutual fund managers. It is best to invest in a good ETF with low fees such as the Nifty Bees ETF which was one of the first ETFs to track India’s benchmark Nifty 50. However lack of sophistication amongst retail investors have not allowed these ETFs to gain popularity. Now there is one more reason to stay away from the chills of the Indian mutual industry as the stock market regulator SEBI has said that 50% of the MFs under perform the benchmark and some fund houses have underperformed over their entire history. It also cites the example of a fund trading circulatory with an investing bank flouting regulations. However lack of criminal cases against these white collar crimes emboldens the fund managers to keep indulging in frauds enriching themselves at the expense of the investors. Note insider trading is quite rampant in India and the fund managers are known to be active participants along with the promoters of the companies.

ET

HSBC, the word’s third-largest bank, has stopped selling insurance and mutual fund products in India. Amid mounting allegations of mis-selling and certain sharp practices, the London headquarters of the British bank, which carried out a “culture audit” of the Indian retail banking and wealth management practices, has ordered a suspension of sales.