RBI wakes up to banks’ hidden rates

Addressing a news conference today, RBI Governor Y.V. Reddy said small depositors, like pensioners with small transactions, have been often ignored by banks. ‘‘But now we are asking the banks to offer same quality standards to the small depositors which are usually reserved for big clients,’’ the governor said.

Asserting that other countries are planning legislation that will help protect vulnerable consumers, the RBI said it will set up an independent Banking Codes and Standards Board of India to ensure that proper code of conduct for fair treatment of customers is evolved.

The RBI will also issue guidelines to ensure transparency and disclosure of information by the card-issuing banks and customers rights protection. It will also widen the scope of ombudsman to cover all individual cases/grievances relating to non-adherence to the fair practices code evolved by IBA and adopted by individual banks.

A committee set up by the RBI to audit performance of public services headed by S.S. Tarapore noted that there was was widespread impression among the small depositors that one needs to know someone higher up for getting his/her job done. The committee also said the banks’ offerings are generally opaque — what is not charged is mentioned but what is charged is not mentioned — high hidden costs appear rampant and unjustified.

The RBI said several complains have been received in regard to recent trends of levying unreasonably high service/user charges and hike in user charges without any intimation. ‘‘The banks have to understand that depositors are at the end of their tether and banks providing poor customer service will be punished by switching loyalty,’’ the committee said. The RBI’s credit policy said banks have been asked to provide banking services to all segments of the population on an equitable basis.

‘‘The RBI will implement policies to encourage banks which provide extensive services while disincentivising those not responsive to the banking needs of the community including the underprivileged,’’ said the policy document.

‘‘The nature, scope and \cost of services will be monitored to assess whether there is any denial, implicit or explicit of basic banking services to the common person,’’ the RBI warned. Banks are also urged to review their practices to align them with the aim of including the consumer.

Banker Speak

The credit policy for FY06 is progressive. The central bank remains bullish on growth but the increase in reverse repo rate by 25 bps signals RBI’s concern to keep inflation under check. To ensure the continued growth momentum, the policy has focussed on the credit delivery mechanism to enhance the flow of credit to the rural, farm and SSI sectors. Overall, the policy seeks to strengthen the banking and financial system, enabling banks to compete with global players not only in markets abroad but also on the domestic turf.
AK PURWAR, chairman, SBI

In its credit policy announcement, the RBI has recognised the growth momentum in the Indian economy and has taken steps to maintain a supportive liquidity environment to aid the growth. This is balanced with the key consideration of managing inflationary expectations, given the continuing uncertainty in the energy price situation. The increase in the reverse repo rate needs to be seen as a proactive move in this context. The policy recognises the merit in further deregulation of interest rates.
KV KAMATH, MD, ICICI Bank

The country is seen among the fastest-growing economies of the world with a growth of 6.9% in 2004-05. The policy may be seen as a positive stance taken by the RBI to sustain growth momentum. Rates have been left undisturbed to provide a stable environment for investment.
CHERIAN VARGHESE, CMD, UBI

Stance of the policy is to provide appropriate liquidity to meet credit growth (estimated at 19% in FY06) and support investment and export demand in the economy while placing equal emphasis on price stability. Quarterly review will ensure greater transparency as well as more frequent communication with the markets. However, there is no mention of RBI stance on the review of the ECB policy specially in relation to FCCB’s. FCCB’s are considered as equity when calculating FII limits but under the ECB policy it is considered as debt. Would be interesting to see the contents of the policy on merger and amalgamation between private sector banks and NBFCs.
DEEPAK PAREKH, chairman, HDFC