Damodaran Committee: More talk, less substance

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.

1 decade ago
Private banks do not care for RBI guidelines or directions at all, but are our PSU banks any exception? What is the use of providing jobs after jobs to retired IAS officers (that too with no first hand banking operations experience!) only to ensure their unjust enrichment and their unpractical reports which in any case will be shelved until another retired IAS office (or a pliable ex-banker) is asked to the same job at even higher remuneration? What does Damodaran know of the behaviour of bank clerks and officers? Visut, for instance, the Delhi branches of any PSU bank. Take Nehru Place branch of the most useless bank of the country-the UCO-and see how the staff conducts themselves and the manager remains unperturbed! Every aspect of customer service in this branch is representative of the bank's official culture with the higher authorities remaining blissfully unconcerned of the difficulties faced by customers including the old people. There is no courtesy in any staff or officer, complaints will result in deangereous repercussions including threats from the top, and harassment is the established practice in this courtsey of a bank! Take also SBI Kalaji branch as a model of discourteous behaviour of the staff who do not even know what is good behaviour. With the anti-customer SBI policy of Non Home A/c charges levied on every service provided in another branch to a customer with a bank account in any branch, this premier bank knows nothing but bleeding itscustomers while its executives live in luxary enjoying plush perks at the cost of the country. Do these PSU banks care for Anna Hazare?
MK Gupta
1 decade ago
Harassment of customers can never be stopped by a Committee's half-hearted suggestions, as one Anna Hazare or his thousands of volunteers can never root out the cancer of corruption. SBI, for instance, has a strange rule of charging Rs.20 per passbook entries made in a branch other than the one where the customer has his account. This termed as "Non-Home" account charges. In an age of total on-line service and computerisation, this is prepostereous whereas any customer must have the right to access any branch of his banker anywhere in the country for eithe withdrawing money or depositing money. What a mockery of the IR revolution and that too in the white elephant of India's banking sector! Damodaran being an IAS would never know of these mundane things.
1 decade ago
The Damodaran committee report has many positive features which require accolades. May some thing more could have been done or may be done. However one must congratulate Mr Damodaran for the many customer friendly recommendations pertaining to the ATM and Internet Banking transactions. These were long overdue. As some body who have been arguing on the same points at various forums, the report comes as a great relief and a feeling that RBI is still having consumer interest in its heart though many Bankers have long lost it.
nagesh kini
1 decade ago
I entirely agree with Amit. In fact a judge of the Bombay High Court has warned against having deposits in co-op. banks. The MSCB Centenary celebrations were presided by no less than the President, RBI notwithstanding!
1 decade ago
Some of the recos that should have been done are as follows
1) Pass-Book must me made compulsary irrespective of banks (whether Nationalised, Pvt, Foreign or Cooperative banks )
2) All the Co-operative banks must come under the whole jurisdition of RBI, not dual regulation. I mean it is being regulated by RBI & Co-opratives of Registrar of particular state
3) We had a recent example of MST Bank. Now this bank is regulated by Suger Lobby. & on the board of this bank there are whose whose of
Mr Ajit Pawar & family. This bank is regulated by Rashtrawadi congress & co.
4) Inspite of RBI warning the MST
( Maharashtra State Co-operative bank ) is still governed by Ajitdada & his close associates. This must stop immediately.
5) I request everybody not to open the account in these ill-managed banks

last our banking system is quite robust, but there are certain gaps which has to filled up by RBI.


Amit Naik
Parmod Sachdeva
1 decade ago

What is new in that we Indians are habitual of making more noise and less work.

Like Bharat sone ke chirya tha, 21st century belongs to India but today we are ...... every body knows.

India is IT super power but what is the new R&D done by any Indian company.
Udit C
1 decade ago
Given the Chairman's demonstrated friendliness to investors during his SEBI days, it is surprising to see him distancing himself from a customer-friendly report.
1 decade ago
Passbook printing is an issue in about 30% of the bank branches.

Branches continue to maintain multiple customer IDs there by resulting in opening of Term Deposits with customer IDs where PAN details are not updated and at times customer might have given Form 15G/H but TD are made using a different customer ID, resulting in TDS recovered at 20%. A software change needs to carried out wherein TD receipts come printed with information of both customer ID and PAN so that customer can take up immediately with the bank staff to point out the anomaly, so that TDS is not recovered/remitted when Form 15G/H are submitted, because as per existing laws TDS recovered has to be remitted with 7 days in the month following recovery and such recoveries have to collected back by filing IT return by the customer. Banks should be directed to ensure in a time bound at branch level Unique customer IDs are maintained so that above problem is avoided to a large extent.

Now why Railways should levy service charges for e-tickets wherein actually Railways is saving on manpower and stationery. Similarly why Banks are recovering service charges on a cancelled Railways e-ticket ?

Now as balance enquiry is also included as a part of 5 free transactions in other Bank ATMs, all ATMs should be capable to issue mini statements ( say last 10 transactions) even if the account is maintained by a different bank from the one whose ATM is used.
v n kulkarni
1 decade ago
A nice analysis. An awareness campaign followed by representations to RBI for dumping part of the report is the need of hour
Mukesh Agarwal
1 decade ago
Charging over and above the bill value if paid through credit card even by government companies is an important issue in deficiency of customer service by issuer of cards and merchants. Payment through credit card is accepted without any charge by Malls, cinema hall, grossery shops, medical shops. leading jwellers.
Nagesh KiniFCA
1 decade ago
I've a two way connect with the Damodaran Committee Report.I submitted two detailed concerns of Senior Citizens out of which the definition by bringing down the age from 65 to 60 was accepted in the Finance Act 2011, the Deposit Insurance cover enhanced to Rs.5 lakhs.
The early release without Mr. Damodaran's transmittal letter was triggered by my RTI query.
Instead of a Bank wise Ombudsman the existing Grievance mechanism needs to be upgraded. Not many customers even know about its existance.
Replied to Nagesh KiniFCA comment 1 decade ago
Some banks are representing to RBI not to accept the Damaodaran Committee report. I suggest somebody in Mumbai to make an RTI application to collect copies of all public responses made on the report when it was open for public comment.
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