Poor customer service practices of banks have come under fire from the Reserve Bank of India (RBI). Despite the banking regulator putting in place Codes of Conduct and Charter of Customer Rights, the RBI has found that banks observed the code “more in breach than in practice”, raising the possibility of a regulatory intervention.
RBI Governor Raghuram Rajan last week warned banks against mis-selling of products and poor customer services and said the central bank will take action on such practices. “We have taken cognisance of the fact that there has been mis-selling in third party products. We are going to take it very seriously. The banks should review how it is being done and be very careful that 75-year-old people should not be sold wrong products simply because salesmen require bonuses or compensation. It is something that we will undertake careful review of and if necessary take action wherever warranted,” Rajan said.
“We are going to review the five principles of consumer service and protection put out last year and see how the banks have implemented those five principles. And again to understand what those practices are, where the deficiencies are and move further whether there’s any need for regulatory measures here or whether is a need to share some of the best practices… we will figure it out. We are going to push quite strongly on this and there’s absolutely no excuse for mis-selling. This is an issue we are very concerned about,” Rajan said in a select media meet after unveiling the monetary policy. The RBI’s Charter comprises five critical rights: Right to Fair Treatment, Right to Transparency, Fair and Honest Dealing, Right to Suitability, Right to Privacy and Right to Grievance Redress and Compensation.
According to RBI Deputy Governor SS Mundra, even a decade after coming into existence, the status of implementation of Banking Codes and Standards Board of India’s Codes at the ground-level remains far from satisfactory. “I understand that BCSBI’s assessment of the compliance by banks with the Codes and Standards, has brought out several instances of flagrant violations of the code. This is evident not only from the numerous complaints received by our Banking Ombudsman Offices across the country but also in our interactions with customers in outreach programmes and town hall meetings,” Mundra said at a meeting with principal code compliance officers (PCCOs) of the banks recently.
The RBI has undertaken a study on mis-selling of third party products (TPPs) in semi-urban and rural areas which has revealed startling facts. The Right to Suitability enshrined in our Charter of Customer Rights has been totally ignored or rather knowingly violated for the reasons best known to the banks. The RBI is seized of this issue and may be constrained to take strict actions including imposition of heavy penalties, if the banking industry continues to follow such unethical and unacceptable practices of mis-selling, Mundra had said.
BCSBI is an autonomous institution to monitor and ensure that the banking codes and standards adopted by the banks are adhered to in true spirit while delivering their services. In the rating exercise undertaken by BCSBI on adherence to the Codes by the banks in 2014-15, only 14 per cent of the member banks were rated with ‘high’ rating, 49 per cent got ‘above average’ and 21 per cent banks received ‘average’ rating. These is clearly evidence of the fact that a number of banks need to enhance the present level of code implementation and appropriately fulfill their commitments to their customers laid out in the codes.
According to Mundra, as online transactions have increased, so have complaints related to them. Complaints related to unauthorised fund transfers, fraudulent withdrawals from ATMs using duplicate cards, phishing e-mails aimed at extracting personal information etc. have witnessed manifold increase in recent times. “It is imperative to have a robust mechanism to prevent incidents of fraud in areas of mobile/net banking and electronic fund transfer so as to retain customers’ confidence in these delivery channels. Raising customer awareness on safe usage of such channels should also be an important item on the agenda of the banks,” he said.
The RBI recently undertook a survey of almost 4,000 ATMs with sample size fairly representing geographies and bank categories. Survey results are not comforting in any way. Almost one-third of the ATMs were found to be not working at that point. Violation of regulatory instructions on display material, facilities for differently-abled etc. were also observed.
The RBI has said there has been increasingly a large number of cases of mis-selling of third party products, particularly insurance products to customers by bundling them with loans. The RBI also warned banks against misuse of accounts for money muling. In a recent episode, it was observed that an idle account was used for receiving and transferring large funds without the knowledge of the account holder. The fact came to light only when the income tax authorities served a notice to the account holder. This highlights the failure of bank’s systems for monitoring of accounts. “The newly opened accounts under the PMJDY could be very vulnerable to such sharp practices and hence, banks need to clearly guard against them. Kite flyers and the Ponzi scheme operators also sometimes use mule accounts to swindle public money,” the RBI said.
The RBI also expressed concern over levying of excessive charges for various services. “While RBI does not wish to micromanage the banks’ affairs, the imposition of usurious and uncalled for charges certainly invokes our attention. Despite our guidelines on non-imposition of charges for non-maintenance of minimum balance in a savings account, we have been receiving certain complaints of such practices. It is in this context that we had to reiterate our instructions on stopping imposition of such charges leading to a negative balance in savings accounts. All banks must stop these practices forthwith if not already done so,” Mundra said.