Customers Bleeding; RBI Offers Only Band-Aid
The Reserve Bank of India (RBI) is slowly waking up to public anger about rising bank charges, rampant mis-selling of financial products, growing incidents of digital and cyber fraud and poor grievance redress. Customers are especially angry that banks are never penalised and compensation for harassment is very rare. Yet, RBI has responded merely with an expansion of the role of the banking ombudsman (BO) from 1st July. Under the amended scheme, the BO’s pecuniary jurisdiction has doubled from Rs10 lakh to Rs20 lakh. It is also allowed to pay a compensation of up to Rs1 lakh for harassment, mental anguish, loss of time and expenses. RBI has widened the scope of filing an appeal against the BO’s orders. 
 
Unfortunately, this is like applying band-aid to a huge bleeding wound. It starts with RBI’s refusal to even acknowledge the problem or rampant mis-selling and unfair charges. RBI’s press release describes it as “deficiencies arising out of the sale” of mutual funds, insurance, third-party investment products and “non-adherence to RBI instructions with regard to mobile banking and electronic banking services.” As always, the media has lauded this as a step forward; but it is highly inadequate and incomplete. In fact, we would like to know why RBI has been dodging a far simpler solution for nearly three years. 
 
Let us examine why this is too little. First, there was no need to expand the role of the BO, because taking up issues with it is always onerous and, often, fruitless. The BO will only take up a complaint if a consumer has first taken up the issue with the bank branch, escalated it to the grievance redress cell and has not received a satisfactory response even after 30 days. This is time-consuming and depositors are often led on by false assurances from bank officials. If the complaint is time-barred, the BO can again refuse to accept it. Finally, we have come across several reports of the BO closing cases by accepting the bank’s viewpoint, making no attempt to engage with the victim. 
 
We see no evidence of RBI having studied the efficacy of BOs in recent times or having analysed the over 100,000+ complaints that it received in FY15-16 (especially those that are rejected), while framing the new regulation. The numbers are worrisome. Only half the total complaints received in the year were ‘maintainable’ and even out of these, a whopping 31,900 were rejected. Effectively, only 18% were redressed through mutual consent, while a princely 18 received compensation. 
 
Instead of expanding the role of the BO, the Charter of Consumer Rights that the RBI issued in December 2014 should have provided a better, faster, and more comprehensive redress. But RBI needs to give it teeth by fixing costs and penalties for breaching the five basic consumer rights that it identified, namely, right to fair treatment; right to transparency; fair and honest dealing; right to suitability; right to privacy; and right to grievance redress and compensation.
 
Secondly, the increase in pecuniary jurisdiction for the BO is far too little. Cases of mis-selling of insurance products or problems relating to third-party wealth management products are usually for amounts far in excess of Rs20 lakh. The most egregious of these is mis-selling of insurance. Here’s what a Moneylife survey of over 1,100 respondents in May 2015 showed. Over 83% said they were coerced into buying insurance and 68% said this was especially done while negotiating loans. Realistically, to make the BO useful for the consumer, the pecuniary jurisdiction of the BO should have been raised to Rs1 crore, so that issues above this could go straight to the National Consumer Disputes Redressal Commission—the apex consumer court. 
 
Thirdly, not all cases of downright cheating or ‘deficiency’ on the part of banks relate to one single transaction. Consider this. A dubious relationship manager of ICICI Bank’s Pune branch systematically ripped off a number of senior citizens by conning them into buying multiple, single-premium insurance policies as a succession planning exercise where the beneficiaries were the children and grandchildren. In one case, 12 policies sold to an 80-year-old totalled over Rs62 lakh. His brother, 84, was sold several policies adding to over Rs1 crore. An 86-year-old had his signature forged in policy documents. A 77-year-old doctor was sold a single-premium policy of Rs70 lakh and learnt that she was conned; she needed to make another five instalments of Rs70 lakh or lose everything. The Bank is conducting an inquiry and has paid back two of the victims after Moneylife’s intervention.
 
The new pecuniary limits of the BO do not help such victims. It is not clear if they would have to file separate complaints for each instance of cheating or if the 77-year-old doctor’s plea would be entertained. In such cases, the BO should have been allowed to consolidate the cases, even if it breached the pecuniary limits substantially, and considered some on sympathetic grounds. Instead of this confusion, if the Consumer Charter were made effective, ICICI Bank would have had to refund all the victims based on a simple complaint and would have had to compensate them for hardship under the right to compensation. Isn’t this a far better solution? Cases of organised mis-selling like these are a fit case for punishing the bank (as has happened in most of the better-regulated countries) for failing to monitor sales executives, or worse. 
 

In fact, the Consumer Charter would have covered all issues now under the BO’s expanded remit, such as poor grievance redress in case of ATMs failing to dispense cash, multiple debits for ATM and point of sale transactions, fraud involving misuse of credit/debit cards, cloned cards, etc., wrong billing, incorrect charges and fees, delay/failure in fund transfer, unauthorised electronic payments, wrong reporting to credit bureaus and failure to observe RBI guidelines on use of recovery agents. It could also have offered faster and better redress if it were monitored effectively; but that is probably why banks have managed to get RBI to bury the Consumer Charter.
 
The new BO regulations cover issues such as ‘suitability’ or otherwise of products sold and improper or unsuitable sale of third-party products. This requires application of mind and a proper hearing that allows both sides to make their case. It is not clear if RBI officials appointed as BOs have either the knowledge or the skill to fulfil the greater quasi-judicial responsibility given to them. 
 
What about Compensation?
 
The BO can compensate consumers for the cost, hardship and mental agony suffered due to the negligence of banks. But, by limiting the compensation to a niggardly Rs1 lakh, irrespective of the circumstances of the case or extent of harassment, RBI shows callous disregard for consumers even five years after better-regulated countries have changed. Contrast this with the UK where banks have paid out £26.9 billion, so far, to compensate victims of the payment protection insurance scandal. These include Barclays, Lloyds Banking group, HSBC and RBS. In 2013, the Financial Conduct Authority of the UK forced HSBC to compensate customers after a ‘mystery shopping’ exercise by its investigators revealed mis-selling of investment products. 
 
We don’t know when RBI will be under enough pressure from policy-makers or its own public directors (such as Bharat Doshi, N Chandrasekaran, S Mankad, Dr Rajiv Kumar, Ashok Gulati or Manish Sabharwal) to step out of RBI’s ivory tower, understand consumer issues and initiate strong corrective action. It will happen only if people keep up the pressure and signal to the government that they will not allow themselves to be fleeced anymore.
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    VIVEK SHAH

    4 years ago

    The customer greivience redressal mechanism must be demerged from the RBI's functions. This cell has to be independently handled by a separate body. It is obvious that currently RBI is focused more on the NPA and the profitability of the banks than towards protecting the customer's interest. RBI is a toothless tiger when it comes to protecting the rights of millions of customers.

    REPLY

    Pradeep Kumar M Sreedharan

    In Reply to VIVEK SHAH 4 years ago

    We need a Consumer Commission, in line with Election Commission.
    Anything less is unacceptable.

    Kshama Jain

    4 years ago

    I think RBI is not at all concerned about the citizens, they are on the banks' side

    Unni Krishnan

    4 years ago

    RBI should consider the grievances of the poor public rather than the convenience of banks.

    PRAKASH D N

    4 years ago

    Request RBI to review it's decision.

    Thomas K John

    4 years ago

    Request RBI to take appropriate action to safe guard customer interest

    Shantikam Hazarika

    4 years ago

    The BO post is a very coveted post. People canvas for this post like anything. The perks for a retired bureaucrat/politically connected persons are immense. And Banks keep the occupants highly pleased. Of course it is in no one's interest, except the poor consumer, to enhance the scope. Hence, we are destined to suffer.

    Pradeep Kumar M Sreedharan

    4 years ago

    Complaining to Alibaba about the 40 ha ha
    Conterfeit notes were discovered by CBI in RBI vaults. The same notes were found distributed to banks.

    Mahesh S Bhatt

    4 years ago

    It happens also in India.Money is one of the most dangerous creations of mankind to make him gloriously UNKIND N MAD. Amen Mahesh

    Ramesh Poapt

    4 years ago

    power corrupts, absolute power corrupt absolutely..

    A BANERJEE

    4 years ago

    A very well written and argued piece by the eminent writer. Banks and their executives think that they are above law. The PSBs, including and especially SBI, are so very anti-customers that one feels like having opened accounts with them. In my case, I have an SB A/c with the SBI, Nungambakkam Br., Chennai, opened when I was transferred to Madras/Chennai in 1990. I have another SB A/c at Delhi with the Kalkaji Br. of SBI. I got my FDs transferred from the Chennai Br. to the Kalkaji Br. some time ago. I got the largest of the FDs (now in the custody of the Kalkaji Br. of SBI) encashed a few months back. I wrote to the Kalkaji Br. requesting for a TDS Certificate for the last FY, followed by several reminders. The Bank in general, and the Kalkaji Br. in particular, does not have t5he culture of responding to emails and the managers and staff of this Bank believes in forcing customers to personally visit them repeatedly and harassing them too.
    I sent a copy of my mail to the Nungambakkam Br. also, as the FDs had been transferred by that Br. to the Kalkaji Br. While there was no response from the Kalkaji Br. even after several reminders, the Chennai Br. sent me a mail offering their services in furnishing the requisite TDS certificate. I was naturally happy, though quite amazed too. Meanwhile, the Kalkaji Br. wrote to me that the details of TDS cannot be provided by the Delhi Br. and gave some strange reasons for this. The Chennai Br. sent me a statement of the interest accrued on the FDs, without any mention therein of the TDS therefrom. I have written back to the Chennai Br. about this, but there is no reply as yet and the TDS Certificate has still not been made available to me. As an ex-IRS officer, I am naturally curious to know as to why no tax was deducted at source from the interest shown to have deducted and why the Delhi Br. does not have the responsibility for doing the needful in this matter! I really wonder as to how the largest bank in the country is working.

    Subray Kamath

    4 years ago

    On the one hand, in recent times there has been talk of the finance minister and his officials putting pressure on the RBI to reduce interest rates and the public outcry and politicians on the other side saying it is undermining the independence of the RBI as an institute.
    Well, if that is so, RBI should act and think independent. That can only be done and seen, if it were to reprimand and take action against banks that have used wrong means to cajole customers into buying products that they do not need and also charging them high service charges for all and sundry. This is without proper and adequate service being rendered.
    The proposed consolidation of the nationalized banks is another case in point. The service of the so-called premier bank SBI has always been poor and with the consolidation, it is bound to get worse. Walk in to any SBI branch and you will what I mean. Except very rare cases, the officers and the staff at the counters behave as if they are doing us a favor and we are transgressing in to their area of freedom.
    NPAs that many of these big nationalized banks have generated is of their own doing and the funds handed over without a thorough check and balance. I am sure that most of those at the helm, responsible for giving out large loans, will either retire or go scot free.
    In the law of torts, there is something called as vicarious liability. Those at the very topare also responsible as the ones who were directly responsible for these NPAs.
    Will the RBI or the government for that matter, initiate action against them?

    B. Yerram Raju

    4 years ago

    It is time that the existing RBI's rule making bosses read and re-read the two Reports on Customer Service: under the Chairmanship of R.K. Talwar and the other under R. Damodaran. The man with nails in hand always searches for a hammer. This is what the RBI's depressing attitude to the bank customers. Government is not concerned although owns 83% of the industry. It is more concerned with mergers and large balance sheets of banks and to create to o big to fail banks. These too big banks look at profit earning windows; officers look at making money through sale of products other than banking. Flush with deposits, they have all down-sized interest rates. Hurt by NPAs they are unable to lend. What for these banks exist? For safe deposit lockers and other miscellany whopping charges for the service plus 18%GST and this is banking in India. Cash economy has come to surface with all digital transactions attracting service charges of huge order. It is time RBI wakes up from slumber lest it will have no time to regret!!

    Peter Menon

    4 years ago

    On the one hand, they screw the public and the old and unprotected. On the other hand, they cozy up with their big shot buddies and multiply NPA's at their customer's cost. There needs to be a pogrom against the unethical bank officers. Long overdue.

    RAMU

    4 years ago

    RBI clearly suffers from conflict of interest. In the process, it is biased in favour of growth or even profiteering of banks. It cannot protect even a wee bit of consumers' interest.

    SuchindranathAiyerS

    4 years ago

    The RBI is just a bond maiden of a rapacious Government. Since HVR Iyengar and counting:

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    28 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 4 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)