A recent speech by the Reserve Bank of India (RBI) deputy governor SS Mundra made news mainly for one comment—that RBI was examining whether to issue regulatory directions to limit customer liability for electronic banking transactions and credit card fraud.
While this is a welcome move, a simple reading of Mr Mundra’s speech on 23rd May, at the conference of principal code compliance officers, organised by Banking Codes & Standards Board of India (BCSBI), shows that poor treatment of bank customers and their needless harassment is as widespread as we, at Moneylife, have been saying it is.
In fact, Mr Mundra’s entire speech is a stern admonishment of banks for treating customers badly in almost every interaction with them. And, yet, RBI continues to give them a long rope and is in no hurry to ensure that its much-touted ‘consumer charter’ gets some teeth and leads to a fair deal for consumers.
Take a look at the timeline of the consumer charter idea. In July-August 2014, shortly after Dr Raghuram Rajan took over as the governor, RBI engaged with various stakeholders, including NGOs, to frame a Charter of Consumer Rights. This was like a breath of fresh air to consumer activists agitating about rampant mis-selling of financial products by banks, opaque charges and poor grievance redress. On 22 August 2014, a draft charter was released for public comment. It created five rights that actually cover every issue that a customer could face in dealing with her bank, namely, the right to fair treatment, right to transparency, fair and honest dealing; right to suitability (of products); right to privacy and the right to grievance redress and compensation.
Moneylife Foundation (MLF) was among those that welcomed the draft, but wrote to the governor to say this motherhood statement would work only if RBI prescribed clear penalties and compensation for treating customers badly. MLF also pointed out that BCSBI already had a toothless customer code which was an abject failure. We heard nothing from RBI.
And, yet, the bulk of Mr Mundra’s speech in May this year was a narration of the shoddy treatment of customers and sad customer services. Here are some highlights.
• The fair practices code adopted by banks/financial institutions is observed more in breach than in practice.
• Even a decade after having come into existence, implementation of BCSBI Code remains far from satisfactory (which is what we told governor Dr Rajan in 2014).
• BCSBI’s assessment of the compliance by banks brought out several instances of flagrant violation of the code. This was also evident from the numerous complaints received by the banking ombudsman and RBI’s interactions with customers in its outreach programmes and town-hall meetings. Ironically, despite this finding, BCSBI seems to have rated banks quite high on adherence to the code, with 63% getting above average or high ratings!
• The media headlined Mr Mundra’s statement that RBI is examining whether to issue regulatory directions with regard to limiting the liability of customers on fraudulent transactions arising out of cards and electronic banking transactions. But this is about the only specific plan of action that he mentions in a whole laundry list of malpractices that he himself narrates.
• In our plea to RBI about banks wanting to charge for more than three withdrawals a month from third-party ATMs, MLF has shared customer feedback that they were forced to use private bank ATMs because those of their banks often did not work. We even offered to create a phone-based app to report such incidents. We heard nothing from RBI. Mr Mundra now says that RBI surveyed 4,000 ATMs across the country and found that a third of them were not working at that point of time. Here, again, he makes no mention about penalties for this or a rollback of charges that are being extracted from consumers.
• RBI agrees that banks have been levying ‘excessive charges’ for various services and some banks continue to impose a charge for non-maintenance of minimum balance in a savings bank account. Mr Mundra warns of action.
• Next, Mr Mundra confirms our repeated complaints about large scale mis-selling of third-party products. He says that RBI has done its own study in semi-urban and rural areas which has revealed startling facts. He also cities a few examples of loans bundled with insurance, where the bank has not completed the process of buying insurance while collecting the premium; or preying on senior citizens and luring them to invest in risky products with lower returns when they come to the branch to renew their fixed deposits and cases of agents luring people to purchase insurance with the promise of interest-free loans. Our readers know that MLF has helped people recover nearly Rs50 lakh lost in such mis-selling alone. However, in the absence of strict action by the banking and insurance regulator, this mischief continues unabated.
Here is a contradiction between Mr Mundra’s speech and plan of action. If the consumer charter, with its ‘right to suitability’ has become operative, mis-selling of third-party products would end, provided there is a ‘harsh penalty’ for violation of the charter. But Mr Mundra does not envisage this. He says, “RBI is seized of this issue and may be constrained to take strict actions including imposition of heavy penalties, if the banking industry continues to follow such unethical and unacceptable practices of mis-selling of third party products.”
Mr Mundra mentions a case where a customer’s idle account was used for money muling (large transfers of money in an out of the account without his knowledge), which came to light only when the income-tax department served the customer a notice. He specifically identifies Jan-Dhan accounts as being vulnerable to such misuse by Ponzi operators. These accounts have minimal KYC (know our customer) requirements and belong to less literate individuals. Mr Mundra asked bank officials to ‘seriously introspect’ about these accounts. But shouldn’t the same advice be given to the finance ministry which is celebrating the strangely large deposits into these accounts? Especially, since he says that “banks have some alert and exception transaction reporting mechanism at present, it is mostly primitive and generally ineffective.” Instead, the government is signalling to banks that no questions be asked about deposits in Jan-Dhan accounts.
So what next, you would ask, as a consumer. Mr Mundra says that all banks had dutifully drawn up a Customer Rights Policy by July 2015. Further, all public sector banks and select foreign and private banks have appointed an ombudsman (chief customer service officer). I checked a couple of them, but they do not provide any timelines for rectifying customer grievances or speak of compensation or payment, if the expected standard of service is not delivered.
Since Mr Mundra and RBI repeatedly assert that they do not want to micro-manage banks, why is it so difficult to incorporate these penalties and standards in the consumer charter? If banks and individual bankers are made accountable for treating customers fairly and not mis-selling unsuitable products to them, the threat of penalties along with ensure better service. In the absence of competition and the difficulty in switching banks accounts (mainly because of the difficulty in switching direct debits and electronic transfers that are tied to account), a strict customer code will ensure fair service and eliminate the need for frequent warnings by RBI or the need to increase banking ombudsman’s offices. But is RBI willing to listen, or will banks be subjected to yet another speech next year?