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No beating about the bush.
An improved code forces banks to be more careful about technology-related frauds on their customers, for which banks are unaccountable now
The year promises to begin on a better note for bank customers. A report in the Economic Times (ET) says that the revised code of services by the Banking Codes and Standards Board of India (BCSBI) is going to be significantly pro-consumer and move towards a better balance of rights and obligations between banks and their customers. According to the ET report, there are two main changes. First, when it comes to electronic fraud, the onus of proving that the customer participated in the fraud or compromised the user ID and password will shift to the bank. While the details of the changes prescribed by BCSBI are not known, these changes were recommended by the Damodaran committee on customer services way back in 2011.
Its report had said that Internet banking should be so designed that it would make consumers feel that electronic transactions are safe. And that there should be “a secure total protection policy/zero-liability against loss for any customer induced transaction, utilising technology through ATMs (automated teller machines)/PoS (point of sales)/online banking, etc. A customer should not be made to be out of funds when any loss is suffered on account of Net (Internet)/ATM banking transactions.”
In fact, the committee recommended that banks should allow customers to put in various checks to prevent fraudulent transfers. These could include, restricting transfers abroad unless specified and restricting transfers above a certain value. More recently, at a meeting of nodal officers and banking ombudsmen, Dr KC Chakrabarty deputy governor of the Reserve Bank of India (RBI) had emphatically said that banks cannot push the burden of proof on the customer and, if they could not find suitable insurance cover to mitigate their risk, they may want to reconsider offering Internet banking at all. “Nobody forced you to offer Net Banking,” he said.
The committee recommended tiered security for the safety of mobile transactions which have already been introduced by almost 50 banks. These include—cap on transaction value, destination of transaction (two-level authorisation for non-routine destinations), security based on handsets and the frequency of payments. More importantly, it had said that grievances about mobile banking should be dealt by banks without hassling the customer by referring the matter to the service-provider.
A frequent complaint is about ATMs failing to dispense cash. RBI already requires complaints to be resolved within seven days and the money credited back to the account, failing which the customer is entitled to a compensation of Rs100 per day of delay. RBI’s customer services department is now following up on the Damodaran committee’s recommendation that a small camera should be trained on cash being dispensed into a bin. But banks have been resisting the move on the grounds of the high.
A revised BCSBI code is certainly a big move forward, but customers must remember that the code will not protect customers who fall for phishing or vishing attacks on the pretext of account verification or succumb to the lure of a fake lottery or prize.
Another change in the BCSBI code is that banks will have to drop the quid-pro-quo deals with third-party products on customers, usually borrowers. These would include insurance tie-ups with car dealers, especially when there is a loan involved or making a specific insurance mandatory on mortgage loans.
This is again a small step forward in the large fight that Moneylife has been waging about stopping banks from selling third-party products altogether. We believe it is a strange travesty that banks take advantage of their fiduciary role of keeping deposits safe and, instead, push customers to withdraw funds to buy toxic and expensive insurance and investments, to earn commissions for themselves. But this is a global battle which will require persistent effort by bank customers around the world.
Looking at the issues faced by MSMEs in borrowing money from banks, one really wonders why this happens when there is a code of banks commitment to micro and small enterprises
Micro, Small and Medium Enterprises (MSMEs) are often hailed as the pillars of Indian economy. Their contribution both in terms of production of goods and services and employment generation is immense. Surprisingly, success achieved by most of the MSMEs is because of their own endeavours, and there is very limited support from the system in which they operate. MSMEs face problems at all stages right from the setting up of a business entity to the selling of goods in the market.
However, the toughest task for MSMEs today is to get a loan approved from a bank to fund their project. In absence of collateral, raising loans is impossible for a small enterprise. This happens in spite of the fact that a popular government scheme called as, ‘Credit Guarantee Fund Trust for Micro and Small Enterprises’ is in place to help borrowers, who do not have the collateral to offer. This is not the only issue. Getting a loan application acknowledged is also a gigantic task. Looking at the issues faced by MSMEs in borrowing money from banks, one really wonders as to why this happens, when there is a code of banks’ commitment to micro and small enterprises. These codes are set by Banking Codes and Standards Board of India (BCSBI).
Let us look at some of these codes to see how seriously these codes are followed by the banks:
Code on Lending
We will inform you about salient features including benefits available and charges payable and terms of Credit Guarantee Scheme of CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL ENTERPRISES which is extended by eligible banks and is popularly known as CGTMSE guarantee scheme for MSEs and which is available at present to new as well as existing Micro and Small Enterprises including Service Enterprises with a maximum credit cap of Rs100 lakh (Rupees One hundred lakh) per borrower, excluding retail trade, educational institutions, training institutes and Self Help Groups (SHGs) as per the said Scheme.
Reality: Most of the MSMEs crib that bank officials very rarely talk about the scheme. Even dedicated SME branches of banks discourage lending under the scheme. This happens even in cases, when the scheme is advertised by a bank. The RBI data below shows it all. Considering that India has more than three crore MSMEs, the number of loans sanctioned is miniscule.
Code for loan application:
Acknowledge, in writing, the receipt of your loan application, whether submitted manually or online, indicating therein the time frame within which the application will be disposed of.
Reality: Banks rarely acknowledge a loan application. Acknowledgement for loan application is given only in such cases where banks found some scope for granting of loans. If a small or medium enterprise comes up for a loan proposal which has some new ideas, banks tend to reject the loan application on the grounds of viability without acknowledging the loan application.
Code for credit assessment:
Reality: As mentioned above collateral free loan remains a dream for MSME borrowers. While there are risk perceptions of lending to MSMEs, the fact remains that banks have agreed to promote MSME business by adopting this code. Hence non-adherence to the code raises questions about the bank’s seriousness about the code.
There is a need to empower MSMEs with respect to their rights and duties when they deal with banks. It is true that loans cannot be disbursed in a callous way by the banks without following due diligence. But the fact remains that MSMEs need financial help which can be provided only through institutional framework of financing. While approval of disbursement of loans come only at a very advanced stage, banks do need to share the details of banking codes so that MSMEs understand their rights and also ensure that they follow duties that this code expects them to do.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
Would you like to save on mobile banking transaction charges? Then, you need to know that only four banks out of 59 banks charge customers for using the interbank mobile payment system and even NPCI charges just 25 paise per IMPS transaction from the remitter bank
State Bank of India (SBI), Axis Bank, ICICI Bank and UCO Bank are the only four banks among 59 banks offering mobile payment facilities that charge for the service. These banks charge customers anywhere between Rs5 to Rs25 each time they use the interbank mobile payment system or immediate payment service (IMPS) transaction. The other 54 banks offering IMPS facility do the interbank money transfer free of charge. The banks are within their right to charge for the services, since the Reserve Bank of India (RBI) had left the decision on charges to the banks (Wake Up to Your Bank Charges). An email from an angry reader prompted us to investigate the matter for the benefit of readers. We find that the National Payments Corporation of India (NPCI), which introduced and manages IMPS transactions between banks, charges 25 paise per transaction from the remitter bank only. (http://www.npci.org.in/documents/IMPS_FAQsBankers.pdf )
The IMPS is a technologically advanced system that is very easy to use, cost efficient and time saving service which eliminates issues regarding money transfer. It is cheaper than the cheque clearing system.
So far, as many as 59 banks provide IMPS. Axis Bank’s IMPS outward funds transfer charges are Rs5 per transaction up to transaction of Rs1 lakh, Rs15 per transaction for amounts between Rs1 lakh to Rs2 lakh and Rs25 per transaction for amounts above Rs2 lakh. SBI charges Rs5 per transaction for remitting money through IMPS through its portal and UCO bank is also charging Rs5 per IMPS transaction.
A Moneylife reader pointed out to us that ICICI Bank’s outward IMPS charges are Rs5 per transaction. Yet, this is a better option than the time-consuming cheque clearing system. However, the reader, an account holder of ICICI Bank, said she would prefer to write a cheque instead of using the IMPS facility.
“It is penny wise but pound foolish, either customer spends Rs5 for transferring money through IMPS or customer does not spend anything by using a cheque. This is because banks provide certain cheque leaves every quarter free of cost. So why spend money for using IMPS?” she said.
It is interesting to know that Axis Bank, ICICI Bank, State Bank of India and UCO Bank which charges for IMPS services are part of the IMPS Steering Committee at NPCI.
NPCI, in collaboration with member banks had introduced IMPS that allow customers to make 24x7 instant interbank payments to individuals, or merchants via mobile phone, Internet or ATM. At the time of its launch in November 2010, a senior official of NPCI told Moneylife that IMPS would be offered free of cost and from March 2011 onwards it would start charging 25 paise per transaction. (NPCI opens floodgates for mobile payments in India )
IMPS is restricted to interbank transactions, but can be used by anyone and from anywhere to make payments. One could pay the grocery bill to the shop owner through the mobile phone, provided both parties are registered IMPS users with their respective banks. Similarly, one could pay the fare to a taxi driver directly through IMPS.
The RBI policy of forbearance (allowing bankers to decide charges themselves) with regard to service charges leads to the frequent hikes in banking service charges. Banks are charging money for almost every small transaction or service they offer. In the recent past, Moneylife has written about various charges levied on the customers by the banks.
RBI earlier said that technology has failed to reduce banking transaction costs. Technology must enable customer facilitation in terms of cost, time and convenience and it should be dovetailed to customer needs and expectations.
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