Instead of intelligently reviewing the existing mechanism of customer services, the Damodaran Committee only wants to add to it

The release of the Damodaran Committee report has to be among the strangest in recent times. After 13 months of deliberation, the report was released without M Damodaran (former Chairman of the Securities & Exchange Board of India, SEBI) being anywhere in the picture. As Moneylife has reported, he did not even provide the transmittal letter for the report.

This dissonance, which is probably the result of a disinterested chairman, is reflected in the report itself, which is major letdown. The report makes all the right noises and is correctly and overtly pro-investor. But what was expected from the committee was "a review of the existing system", including the many pointless circulars issued by the Reserve Bank of India (RBI) seeking many layers of committees and meetings, starting at the branch level and extending to the board. Instead of reviewing the existing mechanism, the Damodaran Committee only wants to add to it. For instance, it wants each bank to have its own Ombudsman, over and above the Banking Ombudsman system, which works reasonably well.

Interestingly, after the Talwar Committee of 1975, the Goiporia Committee of 1990 and the Tarapore Committee of 2004, the Damodaran Committee on customer services was supposed to take us to the next level of review and recommendations to improve service delivery to bank customers. But that hasn't really happened, mainly because there is no indication of a thorough review of the existing customer-protection mechanism. The committee claims to have met a broad swathe of stakeholders from bankers to customers, NGOs, micro-financers and pensioners. Yet, it has few concrete solutions to offer. In fact, large chunks of the report that cover issues such as pass books, KYC (Know Your Customer) norms, inoperative accounts and issues with TDS (Tax Deduction at Source) certificates (especially banks' refusal to rectify faulty TDS certificates) and remittances could easily have been set right by the RBI's own customer services department without waiting for a customer services committee to make recommendations. Some recommendations are downright amusing. For instance, the committee says, "Branches should be provided with dedicated phones/computers with Internet connection so that customers can avail themselves of the facilities such as Call Centre, Internet Banking and Phone Banking in the branch itself." Surely, customers can avail of all banking services at a branch and Internet and phone banking is provided, precisely to enable to them to access their account from remote locations?

One of the biggest omissions is the absence of a detailed discussion on the rampant mis-selling of financial products-including insurance, mutual funds and derivatives or structured products by target-driven Relationship Managers and Wealth Managers. For instance, Osian Art Fund, the collective investment scheme, which SEBI failed to regulate, was hard-sold by wealth managers of a foreign bank. Importantly, the high attrition rates among this category of officers ensure that they never carry the can when their false promises and fake guarantees come to light.

Let's look at a few areas where we expected concrete proposals. Consider the simple example of bank lockers. The committee merely notes the views of banks and customers and calls for the RBI to revisit guidelines "to ensure that the activity itself is not dis-incentivised and the customers continue to have availability of lockers at an affordable charge." In fact, Moneylife alone had done better. In February this year, we polled 458 persons and flagged many more issues. The overwhelming feedback was that people wanted more lockers and they weren't available. Surely, the Damodaran Committee could have explored the issue of locker rentals in more detail to come up with a specific workable recommendation?

The same goes for recommendations on bank service charges. While reporting customers' desires with regard to service quality, it ought to have been weighed against cost and feasibility. After all, as a customer, I too desire the service standards of a foreign bank's priority customer while paying what nationalised banks charge! We would have liked the report to consider banks' perspectives on these, instead of making unilateral recommendations that will be debated and negotiated by the IBA (Indian Banks' Association) until RBI closes the debate by issuing an order. This applies to many of its recommendations regarding electronic payments as well as account number portability.

Another half-way recommendation is that insurance cover for deposits should be expanded to Rs5 lakh in order to "encourage individuals to keep all their deposits in a bank". It also wants to explore the possibility of full insurance cover for bank deposits. This is a seemingly good suggestion. But consider this. A deposit insurance cover is unnecessary for nationalised banks; even large private banks are most unlikely to be allowed to fail. The global financial crisis of 2008 has plenty of evidence of governments bailing out the banking system. In India, RBI didn't allow Global Trust Bank (GTB) to fail because it exposed its own failed supervision. The increased cover makes sense only for politically-manipulated cooperative banks or tiny private banks. Couldn't the committee have spoken to the Deposit Insurance & Credit Guarantee Corporation (DICGI), which is an RBI affiliate and headed by an RBI Deputy Governor, to come up with a more reasoned recommendation based on the actual payouts over the last decade?

In fact, if most of the payouts under insurance guarantee are made on account of cooperative banks (as we suspect they are), then we must strongly oppose the move to enhance insurance cover and press for better supervision of these banks instead. In fact, Moneylife Foundation's financial literacy initiatives make a big effort to educate savers about the dangers of faulty supervision of (largely) politically-controlled cooperative banks.

Given that the report is largely a bunch of general statements, a great opportunity to create the right approach for customer services has been lost.