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(Precious) Words of Wisdom : "Never spend your money before you have earned it." ~ Thomas Jefferson

Shouldn't bankers be doing what they do the best...banking

Last week I went to my bank to deposit a cheque of Rs.5 lakhs. The amount interested my banker and he inquired whether I would like to invest this money in a single-premium insurance policy giving guaranteed returns. 

Aware of the pitfalls of such insurance plans, I said no.

'Why don't you look at some good mutual funds' suggested my banker, not willing to let go of me. 

I again refused politely saying that I was already well invested in mutual funds as per my requirements.

However, my banker still persisted stating 'Gold prices have come down sharply. This is a good time to take advantage of this price correction'. 

Since I am in agreement with the views of Warren Buffett on gold (that it is a non-productive asset), I had to decline and dishearten my banker for the third time.

While returning home, I pondered over my banker insisting to sell insurance, mutual funds or gold. And I wondered — wouldn't it have been better for the bank if he had asked me to invest in a FD. 

In fact, that is what banks are primarily supposed to do. They are supposed to collect deposits. Then they are supposed to lend this money. The difference in the deposit and lending rates is their income. And that is where the bank would have made more money rather than earning commission by selling third party products.

Why are banks under-selling their own products in favour of investments of someone else?

I wonder why the banks are not selling their own Fixed Deposits?

Moreover, insurance and mutual funds are specialized products. 

Logically it appears to me that bankers, having a different sort of expertise, should stick to their core competence. 

It may neither be good for the banks nor their clients, if bankers involve themselves in areas that are not their primary domain.

In fact, I don't go to a heart specialist for my kidney problems. I don't seek a criminal lawyer to fight my civil case. I don't look for services of a CA for company secretarial related work.

Similarly, I would rather seek advice from an insurance specialist if I need to buy insurance. I would go to a mutual fund adviser when I have to invest in MFs. I don't think I would prefer my banker advising me on such 'specialized' subjects.

Banks have, of course, come a long way in last 10-12 years and providing excellent banking services. But I guess, they still have a long way to go. As such, I am of the opinion that banks should stop these allied activities (which have conflict of interest) and instead focus on their banking business.    

I presume many of you too would prefer bankers to remain bankers.

An Investment In Knowledge Pays The Best Interest ~ Benjamin Franklin

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