‘Fair practices code adopted by banks is observed more in breach than in practice’ over a year after it was issued
Well over a year after the Reserve bank of India (RBI) notified the Charter of consumer services, very little has changed. The code remains toothless, yet the RBI only talks about its issuance, nearly a year and half after it was formally announced.
“Very often, RBI has found that the fair practices code adopted by banks / financial institutions is observed more in breach than in practice. In view of the growing complexities of the financial transactions and financial markets, RBI, therefore, felt a need to clearly define the role and responsibility of financial services providers, especially in relation to consumer protection and the framing of the Charter of Customer Rights was a logical step in that direction”, said SS Mundra, RBI Deputy Governor, while addressing a gathering at the Banking Codes and Standards Board of India (BCSBI) this week.
He addressed another overdue issue, when he said, "RBI is already examining whether to issue regulatory direction with regard to limiting the liability of customers on fraudulent transactions arising out of frauds and electronic banking transactions". He admitted that with the increase in online transactions, there has been a rise in complaints related to electronic banking transactions, unauthorised fund transfers, fraudulent withdrawals from ATMs using duplicate cards and phishing e-mails, among others. "It is imperative to have a robust mechanism to prevent incidents of frauds in mobile Net banking and the electronic fund transfer so as to retain customers' confidence in these delivery channels," he said.
At the same time, raising customer awareness for safe usage of these channels should be an important item on the agenda of the banks, he said. "... if customers don't get confidence in the channels and decide to abstain from them, then it can have only two outcome - either customer would migrate or customer would come back to the traditional channel which would mean higher operating cost for the banking system," he argued.
Mundra criticised the banks for totally ignoring or rather knowingly violating the 'Right to Suitability' enshrined in the RBI's Charter of Customer Rights in an attempt to mis-sell products to customers. Under the Rights to Suitability Charter, the products offered by the banks should be appropriate to the needs of the customer and based on an assessment of their financial circumstances and understanding. "RBI is seized of this issue and may take a strict action, including heavy penalties, if the banking industry continues to follow such unethical and unaccepted practices of mis-selling of third-party products," Mundra warned. He advised banks to put in place a system of periodic inspections of the sale of third-party products by either own staffs or by direct selling agents (DSAs).
The RBI is also planning to augment the number of its banking ombudsmen offices in the near future, Mundra said.
In conclusion, Mundra said that as the competition intensifies with the licensing of more new banks, only those entities which provide better customer service and experience would survive. Various research studies have shown that customers are willing to pay for quality service and would transact with the institutions which provide better services. Some of us might have heard that customers choose to move to another bank in case if he/she was dissatisfied with the services received at the present. With the implementation of a unified KYC (Know Your Customer), account number portability, would come into the realms of possibility. With the introduction of unified payments interface, a customer can be identified with his unique “virtual address” mapped to his mobile phone linked to the bank account number. With this information available centrally at the NPCI, the portability of the account would merely need a change in linkage to an account in another bank at the backend. Banks must, therefore, build structure and processes that aim at providing quality and efficient services or else face the prospects of a customer silently walking away without causing any inconvenience to him/ her and loss of business to the bank. This is the warning to all banks and bank staff, as customers have begun to value service from banks.