Bank customers in India are growing more comfortable with using their debit cards for purchases, according to Visa’s latest Global Payment Tracking Survey 2011. Debit card penetration in India is at 53%, a 4% rise over that in the previous year. This increase can be attributed to Indians’ growing comfort with debit card usage. Over 68% of respondents said that they feel safe; another 51% derive a...
In many cases like wrong reporting to CIBIL, upgrading credit card without consent, mis-selling and blank clause in loan agreement by banks, the Ombudsman has ruled in favour of the customer
Banking customers continue to run from pillar to post to resolve their grievances, however, many of them fail to approach the Banking Ombudsman, who over the last year has ruled in customers’ favour on several occasions. According to the Reserve Bank of India’s (RBI) annual report on Banking Ombudsman (BO), during 2010-2011, total number of cases registered with the BO fell by 10% to 71,274 cases from 79,266 cases a year ago.
Interestingly, of the total complaints received, 31% belonged to the State Bank of India (SBI) group, followed by 29% of other nationalised banks. While complaints relating ATM, debit and credit cards continue to dominate the list, the report has explained some of the interesting cases dealt by the BO in favour of the customers.
Moneylife brings you some of these cases
Wrong reporting to CIBIL
Pinky (named changed) was not given a home loan as her CIBIL score was not good. She had made full and final settlement of her outstanding dues on her earlier personal loan. However, she learnt that the payment made was credited to the usual account and the account was not closed. This resulted in accumulation of charges and she was denied the home loan. Despite complaining to the bank, the issue remained unresolved and she approached BO. The BO observed that the bank made the outstanding amount as ‘Nil’ but updated CIBIL as ‘Settled’. It held bank guilty of deficiency in service and ordered to pay Pinky a compensation of Rs5,000 as expenses. The BO observed that since a CIBIL report is crucial parameter in sanctioning loans, banks should regularly update it.
Upgrading credit cards without consent
Mr Nair (name changed) a senior citizen is a credit card holder. Seeing a bank’s offer on platinum credit cards, he asked the bank to send him the related literature which will allow him to take a buying decision. However the bank, without his consent, sends him the platinum card along with the literature. It later sends him a bill of around Rs5,500. Mr Nair was not interested in this card and requested the bank to cancel it. The bank, instead of resolving the issue, harassed him for the outstanding amount on the platinum card. Mr Nair approached the BO. The ombudsman directed the bank to reverse the card fees and related charges and confirm Nil on the card account. It also asked the bank covert the platinum card into a lifetime free card.
Cheques dropped in drop box
To avoid the long rush at the counter to deposit his cheque, Rahul (name changed) dropped it in bank’s drop box. Surprisingly, his cheque was not credited and on inquiring it was revealed that the bank did not receive it. Later he learns that the cheque was paid to some other bank. On complaining to the other bank, he finds that a new account was opened in his name and the amount was withdrawn soon after it was credited. He complained to the BO, who found that the bank, which had opened the account, was lax in monitoring the account and the KYC (know your customer) norms and the account holder was not traceable. Rahul was paid his cheque amount by the other bank on the direction of the BO.
Ashok (name changed) bough two insurance policies, each of Rs50,000 from his bank. Later he realized that he has to pay a premium of Rs50,000 on half-yearly basis. Considering his weak financial position, he approached the bank, which in turn asked him to contact the insurance company.
The insurance company assured Ashok that nothing was payable on these polices. But later when he asked them to cancel his polices, he was informed that the policies have lapsed due to non-payment of premiums and no amount is payable to him. The matter went to BO. Representatives of the insurance company and bank’s branch manger were present. The insurance company argued that they had sent repeated reminders to the policyholder on premium payment but were unable to produce any document. Meanwhile, the bank manager confirmed that he had sold the policy on the condition that it required one-time payment as explained by the insurance company. The BO observed that policy was sold to Ashok without even considering his financial status and education level and insurance company did not produce any evidence. The BO concluded that the company mis-sold insurance policy and bank was party to it. The company agreed to refund the collected amount of Rs1 lakh.
Blank clause in the loan agreement
An education loan was sanctioned to Veena (name changed) against the collateral of JDA patta of a property by the bank. Veena wanted to construct house on the plot and thought of foreclosing the loan. However bank insisted on the payment of foreclosure charge of Rs38,960. Veena paid the said amount but also complained to the BO office. While hearing the matter, the BO found that that the relevant clause in the loan agreement was left blank. It directed the bank to refund the foreclosure charges.
The introduction of white label ATMs will not be an unmixed blessing, unless RBI keeps a tight vigil over their operations. Whether they will prove white elephants or not will depend on what safety precautions will be mandated by RBI to be complied with by all the stakeholders
The Reserve Bank of India (RBI) had released draft guidelines last month for introduction of “white label ATMs” with a view to expand banking services in the country. So far only banking institutions authorised by the RBI were allowed to set up ATMs and operate them as per its guidelines. As present there are 87,000 ATMs owned and operated by banks in the country, but they are located mostly in urban and metro areas. With a view to further expand banking services in hitherto unbanked and under-banked areas, the RBI has proposed to grant licenses to set up ATMs to private companies fulfilling certain conditions and has invited comments from the public to finalise the guidelines shortly.
Simply put, white label ATMs (WLAs) are those ATMs set up, owned and operated by non-banking companies, which would like to run it as a business enterprise and earn profits. These WLAs do not display any bank logos or labels and hence they are called as white label ATMs and they will serve all banks’ customers, as these WLAs will be interconnected with the entire ATM network in the country.
The proposal to expand the ATM network, whether owned by banks or otherwise, to hitherto unbanked areas is no doubt a welcome addition to the banking network, as it will not only help to inculcate banking habit among the rural population, but will also result in financial inclusion of a large number of people who are presently outside the banking system.
In fact the biggest beneficiaries of this proposal will be commercial banks themselves, as WLAs will serve as an extended arm of a bank and provide cash dispensation to their account holders at a nominal cost, without the need to set up a branch or an ATM of their own, thereby considerably saving on cost which can very well be used for their mainline operations. It is by promoting the habit among the banks’ customers of using ATMs over a longer period, all the banks will benefit tremendously as it will result in lesser customers visiting the branches to withdraw cash and other banking needs, thereby saving in transaction costs, man-power cost, and fewer customer complaints of delay and such other problems generally encountered in branches of banks due to heavy rush observed particularly during the first week of the month.
The proposal, therefore, will be useful to both the banks and their customers, and deserve consideration. But before they do so, certain precautions and safety measures are to be put in place to ensure that these WLAs do not become white elephants to the consumers, who may be easily taken for a ride in the absence of strict rules and regulations and a mechanism to ensure their compliance.
At present customers of most of commercial banks enjoy ATM facility on the following terms.
1. A savings bank customer of each bank can use the ATM of his bank through the ATM card issued by his bank, any number of times free of all charges for withdrawing cash or for any other services offered through the ATM, provided he/she keeps an operating SB account with that bank.
2. If a customer of bank ‘A’ uses the ATMs of bank ‘B’ or any other bank, he will not be levied any charges for the first five transactions in a calendar month. Thereafter for every transaction, he or she will be charged Rs20 per each cash withdrawal and Rs8 to Rs10 per each non-financial transaction like balance enquiry, etc, if he uses other banks’ ATMs.
The RBI in its draft guidelines has suggested that the operator of the WLAs will be entitled for fees to be collected for every transaction completed by using their WLAs as detailed here under:
1. “Being non-bank owned ATMs, the guidelines on five free transactions in a month for using other bank ATMs would not be applicable for transactions effected on the WLAs. The charges for the transactions should be displayed on the screen before the customer initiates the transaction.
2. The WLA operator would not be entitled to any other fee from issuer bank other than the ‘interchange’ fee payable to the ‘acquirer’ bank under the present bank-owned ATM scenario. The WLA operator shall also not be permitted to charge any fee from the customers for the use of the ATM resources.”
These guidelines apparently show that the WLA operator will get their fees twice, once from the customer who uses the WLA and secondly from the ‘interchange fee’, the fee which a card issuing bank pays to the ATM operator to cover the cost of the transaction, and this cost is absorbed by the card issuing bank. The RBI should look into this aspect and clarify this matter for the benefit of the public.
However, if the proposed rules are implemented, the customer will lose the benefit of free five transactions in a month, if he uses the WLAs and will be charged for every transaction as decided by the operator of the WLA. This will be a disincentive for the banks’ customers to use these WLAs. As is well known, ATMs are predominantly used by the middle and the lower middle-class of our population, who are sensitive to bank charges. It is therefore, necessary for the RBI to ensure that the present benefits available to banks’ customers are not curtailed, nor the operators are allowed to charge fancy rates for using their ATMs,
More than anything else, the RBI should not lose sight of the most important aspect of inherent risks involved in allowing private entities to set up, own and operate WLAs as there is a distinct difference in attitude between banks and the private parties in owning and operating ATMs. Banks today look upon ATMs as a service to their customers and not as income generating activity per se, and take enough care to protect the interest of their customers with a view to protect their own image. All over the world ATMs are the cause of a large number of bank frauds, and India will be no different, more so when the nameless WLAs are installed, where the emphasis will naturally be on generating more income and protecting the interest of the user may receive secondary importance.
As per the report of the expert group constituted by RBI last year, 99% of the ATM cards issued by banks in India are magnetic strip cards and the data stored on them are vulnerable to skimming and cloning, meaning that they are more susceptible to frauds. The expert group has recommended that it is desirable to upgrade the magnetic strip cards to smart chip-enabled ATM cards with PIN, as these are considered safe from the user’s point of view. This is a massive job as there are about 240 million debit cards and 20 million credit cards in India at present, and most banks’ host systems are not ready for issuance of chip cards.
Besides all our existing ATMs numbering 87,000 are not currently enabled for accepting chip-based cards, though many of them are capable with upgrades to hardware and software. Most countries in the world have migrated to chip-based card with PIN on regulatory mandate as these cards provide protection against both counterfeit (skimming) and lost and stolen card frauds.
The RBI is yet to take a decision on upgrading the ATM cards and the related ATM infrastructure to chip-based PIN cards, as they are awaiting the progress of Unique Identification Project (UID) to determine as to whether UID based biometrics can be adopted as the second factor authorisation for all card transactions. In case UID based biometrics is to be adopted it will require an upgrade of the acquiring infrastructure including ATMs with finger print readers.
The RBI in its circular issued to banks in September 2011 had conveyed that the position of Aadhaar-based biometric authentication as a second factor authorisation for card transactions would be reviewed by December 2012 to assess the need for a complete switch over to chip and pin technology for card-based transactions. Now that the RBI has proposed to allow setting up of white label ATMs, it is all the more necessary for RBI to hasten the process of review and take a decision much earlier, so that all future ATMs, whether owned by banks or private entities, are geared to meet the highest safety requirements mandated by RBI to protect the interest of banks’ customers.
It goes without saying that the RBI should consider the interest of banks’ customers paramount and safety of their money more sacred than rushing ahead with white label ATMs to be set up by private parties, for any hasty decision can jeopardize the interest of the public with dire consequences.
As the saying goes, “it is better to be safe than sorry” and hopefully RBI appreciates this in its own enlightened self interest.
(The author is a banking and financial consultant. He writes for Moneylife under the pen-name ‘Gurpur’)