RBI deputy governor Dr KC Chakrabarty said that the decision on various charges levied by banks has been left to their respective board of directors and the Indian Banks Association oversees the reasonableness aspect and can suggest a cap on the charges. This policy prevents the RBI from interfering with the various charges levied by banks and customers who found them unreasonable would do well to switch banks
Unreasonably high and ever-increasing services charges was an issue that was strongly raised by consumer groups at the "Open House with Dr KC Chakrabarty" organised by Moneylife Foundation. Variable and vastly differing charges are also a matter of concern, since ordinary customers are unable to take a call on what is a fair and reasonable charge and what is extortionate.
Mohan Siroya, chairperson of Consumer Complaints Cell (CCC) said, "The 'greatest wrong' the Reserve Bank of India (RBI) has committed is by disowning its responsibility to supervise the 'exploitation' of bank customers. RBI has given the full liberty to each bank to levy 'service charges' as per their wish. It has become an open market. Now it has come to the light from the Banking Codes and Standards Board of India (BSCBI) that the Indian Banks' Association (IBA) has been given an authority to put a 'cap' on such charges, thus fully abdicating its own duty as a statutory regulator. How is such a body expected to control the greed of making more and more money by its own members?"
"As a consumer I'm ready to pay the prescribed service charges, but one bank is charging Rs100 for a particular service whereas another bank is charging Rs10 for the same service. What does the consumer do then?" he said.
Mr Siroya also spoke about his Right to Information (RTI) initiative to figure out how these charges are decided; it led to the conclusion that individual banks are free to decide their own charges. It took the CC Cell and Mr Siroya three years to just know that it is the BSCBI that had the mandate to monitor reasonableness of banking charges.
In an oligopolistic set up, players get together and decide on the price of a product. On the other hand, healthy competition actually reduces the prices of goods and services which is good for the consumer. However, despite so many banks offering competitive products, the charges are increasing. Competition between banks was supposed to keep service charges in check in a liberalised economic environment, but this is not happening Mr Chakrabarty holds the view that the absence of fair competition because of entry barriers to new banks is one reason why competition has failed to work.
There are more than 150 banking entities in India, which includes public, private, foreign and cooperatives. To most consumers, this seems a large enough number to ensure a competitive environment. Why is competition not working? The view of consumer organisations is rather different. All banks listed on stock exchanges are under pressure to show higher profits. While they have not been able to keep the non- performing assets (NPAs) in check through prudent lending, any increase in service charges goes straight to the bottomline. Hence, all banks are happy to follow the lead of foreign and private banks in increasing service charges, although nationalised banks, probably conscious about their ownership, will remain a step behind.
Adding to Mr Siroya's view, Sucheta Dalal, trustee of Moneylife Foundation said, "The IBA operates in a particular pattern. When one bank decides to charge Rs500 for a debit card, the others, especially nationalised banks, follow its lead and say; okay we will charge only Rs250. This is how banking charges increase every time. Competition does not work because IBA has become a cartel. When was the last time that IBA spoke to any consumer organization or sought the consumers' views?"
Ashok Ravat of All India Bank Depositors Association (AIBDA) and Vasundhara Deodhar from Mumbai Grahak Panchayat (MGP) also raised questions on the reasonableness of banking charges. Both requested the banking regulator to determine reasonable service charges.
Dr Chakrabarty, responded by saying that the decision to prescribe service charges has been left to board of directors of the individual bank. "We said the board should decide (on banking charges) and if the board has given the mandate to the IBA, then we cannot take any action against the Association". On the charge that IBA operates like a cartel he said the RBI cannot intervene. "At best you can approach the Competition Commission, if you feel this is cartelisation," he said.
Referring to Dr Chakrabarty's suggestion to switch banks in case the customer was not satisfied with the bank services, Mr Siroya asked, "How often can a consumer jump from one bank to another on the basis of charges and not to mention the endless KYC hassles each time it is done?"
Initially, bank charges were under the domain of BCSBI, an independent and autonomous body and were supposed to protect banking consumers. It is not a compensation mechanism and looks into an individual complaint only to the extent it points to any systemic compliance failure. It had published a "Code of Conduct" for banks to follow in order to protect consumers' interest, as well as adopt transparent and fair practices.
Dr Chakrabarty, responding to demand for looking into this matter said, "I have no problem with your demand, however, I will not be able to satisfy you within the current framework."
Mr Siroya said, "Under the current rules if customers are penalised or have paid heavy 'service charges' even for a technical fault or being unaware of the repercussion, the bank also must be equally held liable to compensate the customer for 'any deficiency in service' by way of delay or even any technicality."
Replying to the question on penalising banks, the RBI deputy governor said, "If we become too stringent and as you say, we put very high penalty on the bank, no bank is going to pay from its pocket, it will simply increase your charges more. Our purpose is to stabilize banking system. It is not that we cannot penalize, but this way it won't work."
"Customer is the most important part of a banking system and it is necessary that the bankers do not 'squeeze' customers. However, after saying this, we must understand that banking is not just a service but it is also a business and banks need to levy charges on services in order to survive", Dr Chakrabarty added. He also said that some of the banks that attract a lot of complaints also tend to sweep the "best bank" awards handed out by many organisations.
Further in the discussion, Moneylife Foundation also made the point that a customer has no way to judge which is a good bank, in terms of service quality and costs. It was pointed out that in 2006, one Delhi based NGO had conducted a survey on service quality. Many banks were unhappy with the findings and it was decided that the IBA or the BCSBI would conduct such surveys. Nothing has been done in that direction since then. In the absence of such a survey, how are consumer supposed to know that the bank that they switch to would be any better than the previous one?
Clearly, there are a lot of questions that need answers. From the consumer's perspective, the most positive aspect is that the RBI is now willing to engage with customers directly, hear their issues first hand and offer to examine the merits of each demand. This was evident from the fact that although Dr Chakrabarty personally took all the questions during the open house, the programme was attended by all those who would interact with the consumer.
Present at the meeting were AC Mahajan, chairman of BCSBI and Mr Narayana Raja its chief executive. Dr Deepali Pant Joshi, executive director of the RBI, Supriya Pattnaik, chief general manager (CGM) of RBI, Rosemary Sebastian, Banking Ombudsman of Mumbai, M Balachandran, director of National Payments Corporation of India (NPCI) as well as former CGMs in charge of customer services-Kaza Sudhakar and Jagan Mohan Rao. DG Kale, general manager in the Consumer Services department at RBI was also present.
A consumer was denied home loan because CIBIL mixed up his credit history or record with someone else. Another was denied a loan due to gender mismatch. This could happen to you as well
Moneylife and Moneylife Foundation have been continuously raising question on the quality of credit reports and data in India. Here is a shocking case of Umesh Dhawan, who was denied a home loan of Rs5 lakh because his credit history or record data was mixed up with someone else, who was a defaulter. Mr Dhawan has been wrongly blaming ICICI Bank for the problem, while Credit Information Bureau (India) (CIBIL) was at fault.
CIBIL, the credit bureau while accepting its mistake in merging the credit record of Mr Dhawan with another person, has issued an apology and sent a fresh credit report to him, after a mail from Moneylife and strong intervention by ICICI Bank to which we forwarded the customer’s complaint. Even then, CIBIL provided ICICI Bank with an apology meant for the customer and not directly to Mr Dhawan. An explanation was forthcoming only when Moneylife wrote to CIBIL.
While Mr Dhawan’s record would be cleared, there may be several such cases where a person's credit record or data is mixed up with someone else. In a similar case, a senior financial consultant, DM Mahalaxmi also had to go through the same trauma. The question therefore is who will compensate for the loss of repute and trauma experienced by Mr Dhawan and Ms Mahalaxmi.
“Credit information submitted to CIBIL pertained to Umesh Uhawan who had taken a joint loan with Rahul Biswas. Since information pertaining to Umesh Uhawan and Umesh Dhawan were similar, the system matched the details pertaining to Umesh Uhawan with Umesh Dhawan,” CIBIL said in an email to Moneylife.
However, this raises bigger question on the credibility of credit bureaus, their data and ability to crunch the data. Matching data fields like name, date of birth, address, telephone numbers and identifiers like PAN, passport number and voter ID card is a challenge, especially in a country like India. However, over the years credit bureaus like CIBIL have developed an algorithm that is supposed to consider several fields before making a match.
When information in relation to a person whose credit information report (CIR) is to be obtained is fed into the system, a best possible CIR is generated based on the match rules with the available data. When sufficient data elements between two sets of personal data overlap, the information of two different accounts are merged in the CIR, CIBIL said.
In the case of Mr Dhawan, CIBIL said, “Based on the dispute raised by the consumer, we had done an in-depth analysis, it was observed based on the data submitted to us and our match riles, the CIR generated for the consumer had details of another individual mixed in the consumer’s report. We have immediately taken corrective action to separate the information.”
This is a verbatim of the reply received by Ms Mahalaxmi from CIBIL. There may be several such cases, but the credit bureau has refused to divulge the numbers. It said, "The rate at which incorrect merges occur at CIBIL is very low, and is competitive with bureaus of similar size and maturity globally.” Strangely, CIBIL is not answerable to the public as it continues to have a near monopoly on customer credit data or records.
CIBIL is also silent on the exact number of fields that are matched before deciding to merge data of two persons and creating a single CIR. “When enough data elements between two sets of personal data overlap, the information for the two subjects is merged together. The rules, which decide when enough data has overlapped to trigger a merge have evolved over the lifetime of CIBIL, based on annual analysis of the overall consumer dataset. In order to present the consolidated credit history of a person in a credit information report there are a few sets of match rules. The CIR is generated only when such rules are satisfied,” it said.
In the case of Mr Dhawan, were the fields like date of birth, address, PAN number, matched? Looks unlikely. This also means there is something wrong in the process itself.
Moneylife has been raising the issue of credit tracking system, which the above mentioned incidents show, is still in a mess and crippling financial life for no fault of the consumer.
According to sources, following the letter from Moneylife Foundation to Reserve Bank of India (RBI) governor D Subbarao on 13 December 2012, there has been quite some progress on the issues. The RBI has also set up a task force address some of the data parity problems between credit bureaus and lenders, the sources said.
Earlier, following the complaint letter, the RBI has asked banks and financial institutions (FIs) to share historical data with new credit bureaus, of which they had become members.
The financial literacy initiative of Moneylife Foundation, has led to the discovery that credit-tracking remains faulty in several ways. The Foundation also discovered that licensing of four credit bureaus without a level playing field, in terms of access to credit information and historical data, has created a system that is not functioning as it was supposed to.
Moneylife Foundation, through a day-long workshop and counselling on credit reports and issues and through few case studies, also discovered that most of the lenders only look at CIBIL data while others do not even bother to look at a credit report at all before making lending decisions.
There has been much discussion over the accuracy of the data in consumer reports. In general, industry participants maintain that the data in credit reports is very accurate. The credit bureaus point to their own study of 52 million credit reports to highlight that the data in reports is very accurate. The Consumer Data Industry Association testified before the US Congress that less than 2% of those reports that resulted in a consumer dispute had data deleted because it was in error. Nonetheless, there is widespread concern that information in credit reports is prone to error. Thus, the Congress has enacted a series of laws aimed to resolve both the errors and the perception of errors.
However, the goof up in the above mentioned two examples of Mr Dhawan and Ms Mahalaxmi, clearly highlights the need for audits and scrutiny of credit bureaus as well.
NOTE: If you are facing similar issue, you may want to get help from Moneylife Foundation's free Credit Helpline http://www.freecredithelp.in/
The initiative from ASCI will go a long way in getting seriously offending ads removed immediately before they cause any damage to the consumers and society in general
Advertisements which breach the ASCI (Advertising Standards Council of India) code either by being grave obscene, indecent, vulgar or which are against public interest will now have to be withdrawn immediately pending decision of its Consumer Complaint Council (CCC). ASCI has recently amended its Articles of Association to provide for Suspension Pending Investigation. This is similar to the codes of some of the other SROs like the Advertising Standards Authority of the UK. The new Article on Suspension pending Investigation states as follows:
“In exceptional circumstances, when it appears prima facie that an advertisement is in serious breach of the Code and it’s continued transmission on/ through/ by any medium causes or has the effect of causing public harm and/or injury or its continuation is against public interest, then ASCI would, pending investigation and decision by CCC, forthwith require the advertiser/ the advertising agency/ the media buying agency and the media concerned to immediately suspend the release of advertisement.
In the event of suspension of any advertisement in the manner, the CCC shall at the earliest and not later than 30 days from the date of the suspension, adjudicate whether or not the advertisement is in breach of the Code and pass appropriate order accordingly after giving a reasonable opportunity to hear to the advertiser whose advertisement has been suspended. This decision of the suspension is to be taken by the chairman (or, in his absence, the vice-chairman) of ASCI, in consultation with two members of the CCC.”
Commenting on this initiative Arvind Sharma, ASCI chairman said, “Suspension Pending Investigation is an important landmark for ASCI. It will ensure immediate action against advertisements that are clearly seen as against public interest. This initiative will go a long way in getting seriously offending ads removed immediately before they cause any damage to the consumers and society in general. We expect the advertising sector consisting of advertisers, ad agencies and media to support this very important initiative wholeheartedly to protect the interests of Indian consumers and general public.”
Advertising Standards Council of India (ASCI) is an industry body set up to voluntarily self-regulate advertising content. ASCI & its Consumer Complaints Council (CCC) deal with complaints received from consumers, industry and NAMS, against advertisements which are considered as false, misleading, indecent, illegal, leading to unsafe practices, or unfair to competition, and are consequently in contravention of the ASCI Code and Guidelines for Self-Regulation in Advertising. ASCI has recently taken other initiatives to speed up its decision making process.
ASCI has also introduced the Fast Track Complaint Redressal process which will provide decisions related to the intra industry complaints within seven days.