The Reserve Bank of India (RBI), while releasing a framework for strengthening grievance redress mechanism, has warned supervisory action against banks that fail to improve their redress mechanism in a time-bound manner. Last month Moneylife
had written about how the RBI is winding up its customer services department and also BCSBI
(Banking Codes and Standards Board of India). The RBI now appears to be getting serious about better grievance redressal system.
In a notification issued this week, the RBI said “Effective grievance redress should be an integral part of the business strategy of the banks. It is, however, evident from the increasing number of complaints received in the offices of banking ombudsman (OBOs), that greater attention by banks to this area is warranted. More focused attention to customer service and grievance redress will ensure satisfactory customer outcomes and greater customer confidence.”
The RBI circular said: "To further strengthen the customer grievance redress mechanism in banks, it has been decided to put in place a comprehensive framework comprising, enhanced disclosures by banks on customer complaints, recovery of cost of redress from banks for the maintainable complaints received against them in the OBOs in excess of the peer group average, and undertaking intensive review of the grievance redress mechanism and supervisory action against banks that fail to improve their redress mechanism in a time bound manner.”
According to the central bank, disclosures serve as an important tool for market discipline as well as for consumer awareness and protection. It says, “Appropriate disclosures relating to the number and nature of customer complaints and their redress facilitate customers and interested market participants to better differentiate among banks to take an informed decision in availing their products and services.”
At present, redress of complaints under BO Scheme (BOS) is cost-free for banks as well as their customers. Given that the banker-customer relationship is the primary relationship, the main responsibility of customer grievance redress lies with banks, RBI says, adding “to ensure that banks discharge this responsibility effectively, the cost of redress of complaints will be recovered from those banks against whom the maintainable complaints in the OBOs exceed their peer group average.”
However, grievance redress under BOS for customers will continue to remain cost-free.
To calculate the peer group average, the central bank said every year peer groups of lenders will be created by looking at their asset size as on 31st March of the preceding year. These peer groups would track three parameters:
a) Average number of maintainable complaints per branch;
b) Average number of maintainable complaints per 1,000 accounts (total of deposit and credit accounts) held by the bank;
c) Average number of maintainable digital complaints per 1,000 digital transactions executed through the bank by its customers.
As per the banking regulator, if complaints against a bank exceed the peer group average in one of the three parameters, the OBO would recover 30% of the grievance redressal cost from it. In case of two parameters, 60% of the cost and, in cases where complaints exceed in all three parameters, 100% of the cost would be recovered.
The cost of redress to be recovered will be the average cost of handling a complaint at the OBOs during the year.
This is good news for harried bank customers who are often made to run from pillar to post to get their grievances resolved. Banks will no longer be able to shove complaints under the carpet and get away with it because they will be made to pay if complaints are higher.
Since there is penalty associated with higher complaints, the banks will now have to provide better customer service so that no complaints are raised and in the case of complaints, they will try to resolve the complaints promptly. It is hoped this will help get the banks fall in line quickly.
RBI’s annual report in August 2020 said that the CEPD (consumer education and protection department) will now look at grievance redress; do a root-cause analysis of complaints; review the banking ombudsman scheme, consider extending the internal ombudsman concept to non-banking finance companies; review its consumer education cells and set up an interactive voice response system (IVRS) for online support to the complainants.