| Speech delivered by Kishori Udeshi, Chairman,
Banking Codes and Standards Board of India
at the Federation of Karnataka Chambers of Commerce & Industry, Bangalore
on September 11, 2006
1. In India we have been talking for the past three decades about improving bank customer service but the sad fact remains that the quality of customer service remains poor. Soon after taking over as the Reserve Bank of India (RBI), Governor in 2003, Dr.Y.V.Reddy declared that improved customer service to the Common Person i.e., the Aam Aadmi would be one of the central missions to which he would work towards.
2. But, the ground reality is that banking services to customers have not met the desired or expected levels. We have banks who all agree with one voice that customer service is their priority; at the same time we have breaches of basic regulations on customer service and these deficiencies still continue. As Governor Dr. Reddy puts it "statutory regulatory instructions are set out in letter but sometimes, may not be carried out in spirit".
3. It was recognized that for a significant, qualitative and enduring improvement in customer service what is required is not statutory regulation but a framework which would look into the systemic deficiencies which make it difficult to render efficient customer service.
4. In the recent period the RBI has taken various steps to ensure that services rendered by banks to customers, in general and the common man, in particular, meet their genuine requirements. The Indian Banks' Association too has also played a complementary and commendable role in carrying forward the RBI's initiatives for the provision of better banking service to customers.
5. The setting up of the Banking Codes and Standards Board of India was mooted by the RBI because of the felt need to bring about a fundamental change in the overall approach to customer service. The BCSBI, is unique in the sense that it has been promoted by the RBI and eleven banks, public, private and foreign. The RBI is fully funding the financing of the BCSBI for the first 5 years so that it can effectively function as a truly independent and autonomous institution. During this 5 year period the corpus created by the BCSBI from the membership subscriptions would be built up so that when the RBI funding is phased out the BCSBI would become self-financing.
6. The membership of the BCSBI is restricted to scheduled commercial banks and 67 banks have registered their intention to become members. These 67 banks cover almost 98% of the total domestic assets of scheduled commercial banks as well as 98% of the total number of bank branches in India as also 98% of the total number of savings bank accounts. The BCSBI is currently in the process of entering into a covenant with each bank.
7. The BCSBI, together with the Indian Banks' Association, has brought out a Code of Bank's Commitment to Customers which each member bank will make available free of cost to each individual customer. Thus for the first time the common man has a Charter of Rights in his possession which he can refer to while dealing with his bank. The full text of the code has been published by the RBI, in the public interest as a part of its Customer Education Campaign in leading newspapers in Hindi, English and 13 regional languages. The Code is also available on the BCSBI website www.bcsbi.org.in
8. The Code sets out minimum standards of banking practices for banks to follow and covers all products and services, like deposit accounts, remittance facilities, Government transactions, Note Exchange Facility, safe deposit lockers, loans, foreign exchange transactions etc. offered by banks to individuals. It emphasizes on transparency in banks' dealings with its customers. The existing lack of transparency coupled with the difficulty of consumers in identifying key information from the large volume of convoluted material and communication leads to an information asymmetry which renders the banker-customer relationship one of unequals. It is ironic, that in this relationship of unequals the principal, (i.e., the depositor) is far less powerful, (if not powerless) than the bank which is the agent. In this context, the recent Supreme Court judgment regarding the non-enforceability of a contract entered into between two unequal parti
es is a pointer. To achieve the avowed transparency, the code provides for documentation of banks' fees and service charges, in the form of a Tariff Schedule which is required to be displayed on the bank's website and in each branch. The Code also gives a right to customers to peruse the Tariff Schedule free of any charge. The Code lays great emphasis on providing full information to the customer before a product or service is sold to him. For post sale conduct the Code insists on banks giving one month's notice to the customer before making any change in their tariff schedule or any change in terms and conditions, governing the product, which may adversely affect the customer.
9. The cardinal principle that runs across all the provisions of the Code is that banks should not rely on implicit consent from customers and all products and services should be sold to the customer only after obtaining his explicit consent in writing. As a logical corollary of this principle, the Code prohibits banks from providing unsolicited credit in any form including credit cards.
10. The Code addresses the issue of Right to Privacy of Customers and banks have agreed to provide "Do not Call" facility to customers. The banks have also committed that the information not essential for account opening would be sought from their prospective customers, separately, only on voluntary basis and that they would not part with personal information collected by them, for any commercial purpose without seeking the prior consent of the customer.
11. Member banks have also committed to have three policy documents in place viz., a Cheque Collection Policy, a Compensation Policy and a Security Repossession Policy. While the Cheque Collection Policy will deal with all issues related to clearing/collection of cheques by banks for their customers, the Compensation Policy will deal with the transparent mechanism to be followed by banks in compensating their customers for financial losses incurred due to undue delays, failure in executing mandates or erroneous debits etc. The Security Repossession Policy would deal with the procedures to be followed in taking possession of security by the bank where the borrower has failed in his repayment commitment. The Policy is also required to address the issue regarding immediate release of security when the necessary payment has been made by the customer.
12. Another significant feature of the Code is that it is applicable to the third party products sold through bank branches and the banks are under obligation to ensure that their Direct Sales Agent also comply with the provisions of the Code.
13. Through the covenant or agreement signed by each member bank, the bank binds itself voluntarily to adopt the Code for implementation and to observe it, in letter and in spirit. On its part, the BCSBI's efforts would be to enforce the code, through a collaborative approach rather than by use of penal action. I must emphasize that the objective of the Board is to take collaborative remedial action in rectifying the systemic deficiencies in banks.
14. The Banking Ombudsmen would continue to attend to the redressal of individual grievances. The Board, therefore, does not either duplicate or supplement the Banking Ombudsmen Scheme.
15. Since the BCSBI's task is to locate and rectify systemic deficiencies by evaluating and overseeing the observance of the Code voluntarily adopted by banks, this would put a healthy pressure on banks to provide good customer service on par with best international banking practices. Banking is a trust based relationship and the banking license from the RBI provides an assurance of trust to the public at large. It is for this reason that the Governor, Dr.Y.V.Reddy has expressly stated that:
"Those banks, which adhere to the BCSBI Code, would provide the RBI necessary supervisory comfort, and I have no doubt that all the banks will join the mainstream".
16. Governor Reddy's passion for customer service is explicit for it figures time and again in his policy pronouncements. He has always viewed these matters not from the perspective of a regulator but from the viewpoint of the recipient of the services. It is high time that banks emulate his example not in words but in deeds.
17. In the ensuing period the BCSBI would be in communication with the member banks on the Status Report on existing systems for rendering customer service. In addition the BCSBI would be using its Field Managers to assess the actual position at the grass roots level. Deviations between the Field Managers' Reports and the banks' Annual Compliance Reports would be taken up with individual banks and in a collaborative spirit the BCSBI and the concerned banks will endeavour to bring about correction of systemic deficiencies in customer service.
18. Banking is in itself dynamic but together with technological changes and cross-border integration, the changes that are taking place are at a rapid pace. Even though BCSBI is still in its nascent stage and the Code of Banks Commitment to Customers has just been released on July 1, 2006, the RBI Governor has already expressed the need for BCSBI to evolve a separate Business Banking Code to cover small business customers such as traders, partnerships, etc. so as to reenergize the SME sector and make it more vibrant.
19. The BCSBI has miles to go in the long journey ahead. The awakening of bank customers to their rights has not only raised their expectations but is fast eroding their passive patience. In the ultimate analysis it is for banks to realize and accept that consumer sovereignty is a necessary condition for effective functioning of markets. We are in an age of Rapid Transport Systems and as we move forward I would urge banks to rapidly transform their systems for rendering improved customer service.
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