Is it fair to restrict cross selling for MFIs but not for banks?

Whenever a crisis needs to be analyzed, CA Y.H Malegam invariably plays a role. The microfinance crisis in A.P was no exception, and his committee submitted the report yesterday to the RBI. This report on 'Issues and concerns in the Micro Finance Sector' made the case for restricting other income of MFI as follows

We have observed that some MFIs operate not merely as providers of credit but also provide other services to the borrowers and others.  These services include acting as insurance agents, acting as agents for the suppliers of mobile phones and telecom services, acting as agents for the sale of household products, providing agricultural advisory services etc. While these service can profitably be provided by MFIs along with the supply of credit, there is a risk that given the vulnerable nature of the borrower and his/her inadequate negotiating power, an element of compulsion may creep in unless the provision of these services is regulated.  It is, therefore, necessary that the regulator limit the nature of services which can be provided, as also the income which can be generated from such services, the latter as a percentage of the total income of the MFIs.

This situation is not really different for banks, specially the new private sector ones where a branch manager may often get cross selling targets. The banks often coerce customers for extra services like

• Taking education loan insurance from that bank's affiliate only(done by SBI)
• Pushing for investing in MF's from proceeds of matured Fixed deposits etc.

• Further, banks do levy an insurance administration charge(which the Malegam panel has criticized for MFIs stating that We have also noticed that some MFIs levy an insurance administration charge. We see no reason why such a charge should be levied.  MFIs should recover only the actual cost of insurance.

The RBI does mandate forming separate subsidiaries, arms length dealings etc but does not restrict the total income from such services in any way. Given that the MFI clients do need these services, is it fair to restrict MFIs but not banks.
Takeaway: If the stream of bank scandals/frauds keep growing, can we expect a similar proposal from RBI for banks? Probably not given the clout of the 'Indian Banks Association' but then these are uncertain times.