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RBI admits shoddy treatment of customers, but will it act?
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? 
 
 

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COMMENTS

Venkatesh Vemperala

12 months ago

The Employees should know that the banks survival is only the deposits by the customer, and again the loan given to their customers. So without customers the bank is a Zero. If the employees shows their attitude, and hurt the feelings, what can a person do. If a person withdraws money, some staff have the habit of asking why do u require such money for?. In my view they should be educated, and complain box should be kept in each branch, and should be read and cleared by the branch manager.

GLN Prasad

12 months ago

When we will start making Apex bodies responsible for micro affairs. Some one blames RBI , some one blames PM for all trivial things. What is happening in those grass root level organisations, are they not responsible and have commitment. At least, those educated and enlightened citizens must think in a practical way and focus on the issue at that level and should not blame leaders/authorities.

B. Yerram Raju

12 months ago

Yes; you have raised very valid questions and the RBI seems to be reluctant to be transparent in dealing with the issues raised herein. Quite many banks and particularly those in the State Bank group do not grant a loan to the MSMEs without selling the insurance product and this is done by debit to the loan account. This would mean reducing the loan limit up front to that extent!! This has been happening with the knowledge of the RBI, external auditors and inspectors. Why do the auditors fail to mention this? There are incentives to the sale of third party products to the officers of the banks that are more attractive than maintaining the accounts healthy through proper supervision. Had the banks granted incentives to staff for proper due diligence, monitoring and supervision of accounts , though they are essential obligatory functions and yet in the dark, the NPA saga would have been different.

vswami

12 months ago

To ADD:
For knowing, if so inspired /provoked , the comments posted earlier/ viewpoints shared on just one of many similar occasions, on this very website, may look up:

http://www.moneylife.in/article/banks-are-ripping-off-consumers-in-many-ways-will-pm-modi-arun-jaitley-question-them/39983.html

GLN Prasad

12 months ago

It is the "attitude" and "decency" of individual that ultimately matters, whether it is private or public. I have seen more understanding officers in PSBs also. It is not correct to blame only Bank employees, just try to remember as to the way a petty shop keeper or street vendor behaves, though he is uneducated. Educated employees atleast uses diplomatic way in all sectors. One has to curse the degeneration of values and not sectors.

vswami

12 months ago

"....but will it act"- prima facie lacking in courage of conviction; the right / practical poser : Should not customers mind and care to wake up; also strive to the best of individual and collective initiative and efforts . with the whole hear- ted aim of making that happen, sooner than later or never ?!

vswami

12 months ago

To share own instant thoughts (with those like-minded but tuned minutely to the same wavelength):
It does not seem to make much sense, but transcends all standards/expected levels of common sense, for the regulatory authority to admit, -that too at a stage when surrounding reality has all along been allowed, with impunity , to take its own course, uncontrolled to the end of a crisis situation bristling with prospects of no reversibility, -or for that matter, even in any of the pro-activists at large claiming (or openly proclaiming with equanimity) , to turn around and say that “we,...., have been saying it is”.
On the contrary, the sad commentary is that, looking back, one is sure to find instances in which,
- despite having been pinpointed to the authority (also giving publicity through public domain) certain obnoxious and highly objectionable practices being indulged in , almost routinely, to the chagrin of the mostly gullible customers,-
the authority (not to speak of the concerned / impaired customers) has hardly realised but miserably failed , albeit being late (than never), to give any serious thought to the demanding measures for remedying and/or improving upon the long obtaining scenario.
Open / Invite to EDIT should anyone well informed wishes to share independent thoughts and own experience of the like.
((More MAY follow)

Milind Nadkarni

12 months ago

Banks, both public and private sector, are equally shabby when it comes to providing prompt and fair services to customers. Here is how the situation can be summed up :
1) Treatment is shabby irrespective of the amount of investments carried out by customer with the bank.
2) Computerization, which should bring-in speed, accuracy and automation for the benefit of customer, is being used by banks as an excuse to justify the errors and delays. Errors are in some of the basic transactions (such as balance calculations, TDS deductions & providing certificates, Net worth calculations etc).
3) Adoption of call center as a mechanism for providing services to customers has been misused by banks to shield themselves from giving clear cut answers & explanations on goof-ups committed by them.
4) When the faults are brought to the attention of Branch Managers->Circle Managers->Various HODs after investing considerable time and energy by customer, the officials admit to errors and readily apologize, promise that the mistakes wont get repeated. However, predictably, the mistakes repeat in future. Many times, the tendancy on the part of bank is to put all the blame for the shortfall in service on the least common denominator - the so called relationship manager, when it is amply clear that the higher ups have not provided adequate training / supervision / management of resources down below, which has led to the shortfalls.

srini

12 months ago

Very surprising. Everything mentioned in the name of malpractice is happening. Everyone, right from the top are aware of this. But none would like to bell the cat. Why not administrators use their power to do their duty? Like in private companies, let the guilty be put to shame in public. Automatically, the things will fall in place.

This happens even in metros. There is hardly any accountability to the employees as they never stick to a job or position for longer time in banks. In one instance, I was shocked to see the penalty charges for defaulting an investment SIP. Common guys, MY MONEY MY WISH. WHO ARE YOU TO PENALIZE ME for not investing?. I simply moved out all my investments elsewhere. I am sure even if a couple of thousands start doing this, things will start falling in place.

REPLY

Milind Nadkarni

In Reply to srini 12 months ago

I am in complete agreement Srini with your thoughts expressed above; the problem, even if you pull funds from one bank to another, eventually one faces the poor service even in the changed setup. I may also add that it is a myth, that the private banks are better off in handling customers grievances than the public banks, they are an equal match. Treatment giving to senior citizens, particularly is worst. Considering all this happens for educated, literate customers, one thinks what must be happening to uneducated lot. Extremely sorry state of affairs.

srini

12 months ago

Very surprising. Everything mentioned in the name of malpractice is happening. Everyone, right from the top are aware of this. But none would like to bell the cat. Why not administrators use their power to do their duty? Like in private companies, let the guilty be put to shame in public. Automatically, the things will fall in place.

This happens even in metros. There is hardly any accountability to the employees as they never stick to a job or position for longer time in banks. In one instance, I was shocked to see the penalty charges for defaulting an investment SIP. Common guys, MY MONEY MY WISH. WHO ARE YOU TO PENALIZE ME for not investing?. I simply moved out all my investments elsewhere. I am sure even if a couple of thousands start doing this, things will start falling in place.

SuchindranathAiyerS

12 months ago

The RBI wags a customary finger at the commercial banks for treating customers badly. BUT, it does not exercise its powers to do anything about it. Sounds familiar? RBI chappies are standing for election too?

prakash nandedkar

12 months ago

rbi does nothing except long speeches

prakash nandedkar

12 months ago

very correct

Gopalakrishnan T V

12 months ago

The shoddy treatment meted out to customers is with the approval of top management of banks is what the experience tells. In good old days, one can write to higher ups and seek some redressal of the complaints. One can visit branches and speak to some one who knows the customer ,understands the Customer , knows the importance of the customer and has some concern for the customer. But with the invasion of technology, the personal touch is given a go bye and neither the customer nor the bank officials know how to deal with the complaints . KYC is literally reduced to killing your customers and avoiding him by all means by insisting on certain documents which he may or may not be able to produce. Even insistence of Gazetted officers signature is not given up although the new Government under Mr Modi on his taking over as PM announced the need for such attestations. I recently approached ICICI Direct with a request to transfer one of the investments of my late father to my account producing all required documents as per the checklist made available to me which include affidavit from a notary stating that i am son of so and so who is dead . I also attested the death certificate of my father as a retired bank official with my designation but the official insisted for a gazetted officer's signature on the death certificate. Luckily good sense prevailed on him as he did not insist on my late father's own self attestation in his presence. This is the level of understanding and knowledge on the part of officials. Common sense and logic have no role to play and only documents as per the checklist are the guiding principles to render some service. An NRI made a request in writing to close her D mat account and submitted to ICICI bank but even after a lapse of almost two years the account is not closed as the bank wants her personal presence in the branch to close the account though the NRI is based in US and has requested over phone to close the account as per the letter submitted. The bank wants the NRI to be personally present in Bannerghatta Road ICICI Bank branch to close her D mat account , though she is residing in Dallas, Texas.
Less said the better about the deterioration of Customer service in banks. The ground reality is that Customers succumb to the fait accompli and silently suffer as there is no meaningful and reliable grievance mechanism. Rights of Customers are all there on paper but customers should have the capacity to endure with all insults, inefficient and shoddy treatment . Be ready to mentally, physically and financially suffer is the motto the Customers should learn and endure with to have dealings with the banks whether they are in the private sector or in the public sector. Contacts and influence helps to some extent but again it depends on banks. Many ICICI bank fellows even do not know that there is a regulator called Reserve Bank of India. May be the same with many a new generation private sector banks. Knowledge of banking is gradually disappearing among the bank officials is the sad part and the importance of customers for banks survival is practically unknown to many a staff.

REPLY

srini

In Reply to Gopalakrishnan T V 12 months ago

Can't agree more sir. Absolutely true.

srini

In Reply to Gopalakrishnan T V 12 months ago

Can't agree more sir. Absolutely true.

GLN Prasad

12 months ago

The article suggested the best solution
"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"
Once they issue directive customer can take up these violations either under CP Act or with Ombudsman.

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