The latest issue of The Financial Kaleidoscope the official Newsletter of National Securities Depository Limited (NSDL) is devoted to frauds in the financial sector. We bring you a synopsis of the same (for the full version please visit https://nsdl.co.in/publications/nest.php ). The newsletter is revealing in what it mentions and also what it does not mention. The objective of the latest issue is, as told in the editorial is: This edition of our newsletter will help you to take measures to safeguard your hard earned money. While many of the ways in which investors are mislead by the financial sector are mentioned, the glaring omissions are shares, mutual funds and debentures. But let us at least make a synopsis of what is mentioned.

Risks related to banking system

Flagging the recent cooperative bank failures, the Newsletter informs us that the money deposited in banks are not as safe as they seem to be. The deposit insurance scheme covers Rs. 1 lakh and is most probably likely to be increased to Rs. 5 lakhs, as indicated in the recent budget of the Union Government. However given the level of savings of the middle class these days, Rs. 5 lakhs too looks a very small figure. Reports of the NPAs of banks which are at a staggering Rs. 11 trillion only add to the perception that money is not entirely safe in banks. The only hope however is that politically it is not possible that a government will allow a bank to fail, where depositors lose their money. Especially nationalised banks. No government will allow a public sector bank to fail. It will have a huge fall out for the government in power.

Under normal circumstance when a bank is stopped by failed to return money to depositors till matters are sorted out. However, NSDL informs its readers that there are special provisions of RBI where senior citizens, widows and disabled persons can withdraw from a bank where operations have been stopped. Money can be withdrawn for medical expenses, school or college fees, marriage expenses, etc. I have not seen this circular, but if NSDL has indicated so, I am sure that there exists one. This is useful information to have.

PONZI schemes

NSDL also warns of illegal Ponzi Schemes. Ponzi schemes are illegal. A typical Ponzi scheme lures investors promising very high returns in a very short time e.g. double your money in 3 months or 6 months. The initial investors are actually paid the money. This is publicized and many more are drawn to invest. When the fraudster collects a large sum, the fraudster simply closes the office, and runs away with the money collected. In almost every town we hear of a Ponzi scheme every few years. NSDL warns us that we should keep away from such illegal schemes.

Online frauds in the financial sector

NSDL quotes RBI and mentions that in the financial year 2018-19, frauds worth Rs. 71,500 crores were detected in the banking sector. This of course does not cover the numerous undetected frauds that happen every year. But even Rs. 71,500 crores is a huge figure and is large enough for individual bank customers to be very, very careful while dealing with banks, whether nationalised or not. Money lost through fraud is not covered in Deposit linked insurance of banks.

Online frauds

There are many types of online fraud.

• There are many ways your personal details such as date of birth, PAN, account number, credit/debit card number are stolen and used to perpetuate fraud.
• Tele-calling scams are many. The tele-callers make it seem they are calling from an official source and get information on your passwords, user ids, etc. to clean your bank account or to use your credit card.
• Credit card cloning is another method to commit fraud. When you use your card at ATMs, shops, restaurants, etc. it is possible to attach a small unseen device that can capture all the information on your card chip. This information is then used by the fraudster to create one more card and empty your bank account.

While all this may be frightening to the layman on how safe his or her money is, a lot can be gained by being careful and following elementary rules of online payments. For example, never make a payment from your mobile, if it is not loaded with anti-virus and anti-scam software. Or for example never give your personal details to a person you do not know well enough. Even if the call is from your credit card company or a bank, do not give persona;l details or account details. Credit card companies and banks are not supposed to ask such details over phone or through email.

Read the full NSDL article by clicking here: https://nsdl.co.in/publications/nest.php

Which is why at IIST we say Sell Risks Not Returns. We are in the business of risk protection. We enable wealth creation through risk management and risk protection.

Sell Risks Not Returns

Attention all Managers/SBAs/Development Officers/CLIAs train your agents this week on the subject of this article. Keep them ahead of the market and equip them to meet customer objections.

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