The unqualified insistence by banks that potential customers furnish a proof of local address in order to qualify for opening a bank account could be on its way out, with the Reserve Bank of India, in consultation with the Indian Banks’ Association, readying a standardised form for account opening across banks.
Alongside, a uniform list of documents that is to be offered as a proof of identity and address (under the Know Your Customer or KYC norms) by the customers could prevent harassment of consumers by bank staff.
The fact that banks have continued to insist on proof of local address has been a big area of concern voiced by consumers, especially migrant workers, who face trouble in opening a bank account in their place of work. In the wake of persistent complaints, the RBI is of the view that as long as an individual is able to provide a proof of address (whether local or a permanent place elsewhere) alongside a proof of identity for KYC purposes, banks should ideally not put up a resistance in opening an account. The proposed standardised form, an official involved with the exercise said, is expected to be a decisive step in that direction.
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The RBI, capital market regulator Sebi and insurance regulator IRDA are also working jointly to ensure that customers completing their KYC verifications with one bank will qualify to open an account with any bank, mutual fund, insurance company or any other financial institution. The banking regulator and the Insurance Regulatory and Development Authority (IRDA) have reportedly asked banks and insurance companies to upload KYC documents relating to new accounts to a central server from July 15. The government had authorised the CERSAI (Central Registry of Securitisation and Asset Reconstruction and Security Interest of India), which was created in 2011 to prevent frauds in lending, to play the role of a central KYC registry. By registering a lender’s details in an asset, fraudulent borrowers can be prevented from mortgaging the same asset to obtain multiple loans.
This comes at a time when, alongside the telecom sector, where the regulator has cracked the whip on service quality, the RBI too has set the ball rolling on improving customer rights. Regulatory action is expected on a charter of consumer rights that the banking regulator has developed after public consultation, under which, the banking regulator will intensify field visits to check mis-selling as well as the proper functioning of bank infrastructure such as branches and ATMs. Complaints from customers have been mounting on bank infrastructure such as ATMs either not working or being out-of-cash for extended periods of time, especially over the weekends.
Bank boards have already been asked to put in place a broad framework to ensure that consumer rights are protected. Once the frameworks are operationalised by banks, the RBI expects to draw up a list of best practices and potential regulation to get banks to spruce up their consumer interface, officials said.
In December 2014, the RBI had released the final charter of consumer rights. The guidelines cover a right to fair treatment, transparency, suitability, privacy, grievance redressal and compensation. The banking regulator had also highlighted that the customer should not be subjected to unfair business or marketing practices.
As a follow up, a model Customer Rights Policy formulated jointly by the Banking Codes and Standards Board of India (BCSBI) and IBA was provided to all the member banks. The banks were advised to formulate their own board approved customer rights policy based on the Charter and the model policy by July 31, 2015. RBI, officials said, would be closely monitoring of the implementation of the policy and if needed, would issue necessary regulatory instructions. Following this, all the banks have reportedly drawn up a customer rights policy.
In case of a violation of the charter, the affected customer can escalate the matter through the chief customer relations officer of the service provider concerned, which can be further escalated to the banking ombudsman, if needed. If a problem is systemic or if the sums of money involved are large, the regulator could step in.
On complaints over mis-selling of products, the central bank had clearly spelt out that the products offered by banks should be appropriate to the needs of the customer and based on “an assessment of the customer’s financial circumstances and understanding”.
The onus of protecting the confidentiality of customers’ personal information has been put on banks, unless the customer gives a go ahead for information to be shared. Banks will also be held accountable to facilitate the redressal of grievances stemming from its sale of third-party products.
The focus on improvement in quality of service notwithstanding, on the issue of the implementation of BCSBI codes, progress on the ground is less than satisfactory. RBI Deputy Governor SS Mundra said on May 23 at a conference organised by the BCSBI in Mumbai that in a 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.
Also, under the Banking Ombudsman scheme, the RBI is now planning to augment the number of its BO offices in the near future and also to come out with certain amendments to the scheme to make it more effective and consumer friendly.
DISMAL SERVICE AND MIS-SELLING
RBI Deputy Governor SS Mundra, in his BCSBI address, flagged a number of problem areas. These include:
RBI survey of almost 4,000 ATMs across the country fairly represents geographies and bank categories. The survey showed almost 1/3rd of the ATMs not working at that point and violation of regulatory instructions on display material, shortcomings in facilities for the differently abled were also seen.
In a recent incident, a senior citizen, a retired general manager of a private sector company who had invested his retirement benefits in fixed deposits with one private sector bank was convinced by the bank’s representative to invest Rs 2 lakh in an investment scheme assuring his funds would earn a minimum 11 per cent interest and there would be no deduction of income tax upon withdrawal after three years. Another representative from the same bank visited the depositor after a period of one year from the initial investment and convinced him to prematurely close three FDs aggregating Rs 7 lakh and invest the proceeds in the same scheme. After completion of three years, the customer found that he had earned only about 3.5 per cent in returns. The representative is no longer in the service of the bank and the customer is in a hapless position. This was a clear case of selling of a product which was not suitable to the needs of the customer.
* Another episode of mis-selling of insurance products by the DSAs cited by Mundra involved an agent promising loans from an NFBC at a very cheap rate provided the customer bought a particular insurance policy. Detailed inquiry later revealed that the named NBFC no longer existed under that name, he was not an employee of any NBFC and this was just a ploy to mislead the customer into buying a policy. Such proposals were tendered to the bank from DSA and were accepted by them without any verification. Such cases of mis-selling, he noted, are rampant and as sellers of third party products using their own staff/ DSAs, the banks are equally vulnerable. Often, higher sales targets coupled with front ended high commissions are the main motives for such mis-selling.
* In another recent example cited by Mundra of failure of a bank to render proper customer service, a customer was sanctioned a home loan and he had agreed to take a life insurance as a cover for the loan and signed relevant documents. However, the loan sanctioned and disbursed was for a lower quantum than originally applied. On the untimely death of the borrower, the bank contested the claim stating that at the time of availing lower quantum of loan the borrower had not submitted an insurance proposal form and hence, the bank had not taken insurance. The RBI’s analysis revealed that the loan installments paid by the customer included the insurance premium as well, but the bank had failed to complete the process of insurance. The appellate authority adjudicated that the bank was at fault and it didn’t have an appropriate procedure to secure insurance after the sanction of the loan and hence, an award was given in favour of the customer.