Protecting the Banking Rights of the Common Man
[ March 15, 2007 on the occasion of
World Consumer Day in a function organised by the
All India Depositors Association in Mumbai]
As today is World Consumer Rights Day it is only apt
that we focus attention on issues pertaining to safeguarding the banking rights
of the common man. I am grateful to the All India Bank Depositors’ Association
and other institutions which have sponsored today’s meeting for giving me the
opportunity of interacting with you. The All India Bank Depositors’
Association was founded in 1968 before the nationalisation of banks. The
founding fathers of this Association, Mr. D.N. Patodia, Mr. P.M. Reporter,
Professor P.J. Shroff and Mr. M.R. Pai felt that although the depositor is the
heart of the banking system his pivotal role in the banking system, is not
recognised, his rights are not addressed and his interests receive the lowest
priority. Almost 40 years have passed since then, but sadly we are nowhere near
reaching the cherished goals.
At the outset, let me say that while I will be drawing
attention to certain deficiencies in customer service, I should categorically
emphasise that in the recent period there has been a welcome and significant
improvement in the overall approach of banks to customer service. I may mention,
specifically that banks have been distributing their Code of Commitment to
customers; have appointed Code Compliance Officers; are in the process of
displaying their Tariff Schedule and formulating a Compensation Policy, Cheque
Collection Policy, Security Repossession Policy etc. which will go a long way
towards greater transparency in dealing with customers.
Banks woo corporate clients while the RBI and associations
like the AIBDA have been struggling since the last 40 years to get banks to
recognise the interests of the depositor and render proper service to him. Banks
feel that profits emanate from the credit portfolio and ancillary services. What
is often overlooked is the fact that without deposits there would be no credits.
In this talk today, I propose to outline the efforts being made to redress the
woes of the Aam Aadmi, particularly in his role as depositor and the approach we
need to follow in the ensuing period.
Pre-eminence of depositor
It is a harsh fact of life that in the firmament of the
banking system, the large borrower is the most valued segment followed by
smaller borrowers; the poor depositor is the far relative in the system. In the
banking system, we often think about the importance of owners (i.e.
shareholders), regulators and the borrowers but the real fact is that none of
these can claim to be the real owners of the banking system. Make no mistake
about it: without the depositor there would be no banks. The All India Bank
Depositors’ Association has, no doubt, been fighting for the depositor’s
rights but it is time the depositors themselves stood up for their own rights
and assert themselves as the real owners of the banking system. Furthermore, it
is the individual depositor and not institutions that predominate in deposits.
To understand the preeminence of the individual depositor,
I would like to place a few statistics before you. According to statistics
published in the RBI, Bulletin, July 2006, as on 31st March 2005, Savings Bank
deposits amounted to Rs.472,147 crore forming 26 per cent of total deposits of
scheduled commercial banks. The savings bank deposits of individuals amounted to Rs.364,869 crore or 77 per cent of the total savings bank
deposits. These savings bank deposits are remunerated at 3.5 per cent per
annum; in fact, the effective rate is as low as 2.8 per cent approx. This is
because the manner of calculating interest on savings bank deposits is such that
a part of these deposits are not given any interest. (interest is paid only on
the minimum balance between the 10th and the end of the month). These low
cost funds are leveraged by banks and lent at high rates of interest which is a
main source of their profits. In these days of electronic wizardry is it
necessary to continue to follow this methodology for the ease and convenience of
banks at the cost of the depositor?
Regrettably, depositor interests have received low
priority even from the Government. Why is it that income earned through savings
bank deposits at a mere 3.5% rate of interest attracts income tax, whereas
income earned through investments in equities and mutual funds are tax free.
Moreover, longer-term bank deposits, at relatively higher interest rates, enjoy
the 80C deduction from income while this is not available to savings bank
accounts. The system, therefore, appears to be stacked against the Aam Admi.
Basic Ingredients of
When we talk of customer service we mean basically three
things: (i) providing minimum banking facilities of receipt and payment of cash/cheques
at the bank’s counter; (ii) acting fairly and reasonably in all their dealings
with the customer; and (iii) ensuring that their dealings with the customer rest
on ethical principles of integrity and transparency.
Providing minimum banking facilities of receipt/payment of
cash/cheques is a primary requirement but there are deficiencies in service. If
a customer goes with cash for deposit the bank either slaps a charge for
receiving and counting the same or asks you to deposit the same with prior
appointment. Some banks refuse to open an account of, say, a small petrol pump
owner because it would mean daily receipts of cash. As regards receipt of
cheques, banks invariably do not acknowledge receipt of cheques over the
counter. Banks which fail to provide this primary and minimum banking service,
do so on the specious ground that it involves a lot of counting and sorting
work. With regard to the non-acceptance of soiled notes the reason given is that
if the RBI refuses ultimately to accept the soiled note because it is not
covered under the Note Refund Rules then the cashier has to make good the
amount. Well, the same rule applies to the cashiers of RBI so why should it be
any different for banks. In any case, why should the depositor be penalised for
The second basic customer service of acting fairly and
reasonably in all their dealings with customers, prima facie, sounds easy
and simple but, here again, there are hurdles. The term “fairness” is
flexible and dynamic and it is not possible or useful to produce a definition of
“fairness” which can be sustained. What fairness means may vary depending on
the bank’s business and its customers but whatever the business or customer
base, the fairness needs to be evident. While banks have the right to decide
what products and services they offer and be guided by commercial considerations
in the pricing of such products and services, they have to be reasonable, e.g.
some banks force customers to use ATMs for withdrawal/deposit of cash and then
fix charges for use of ATM; or if there are only periodic credits into an
account and no debits, some banks impose a charge on the grounds that the
account is inoperative; or charges for depositing a cheque which bounce,
(for no fault of the depositor), charges for balance enquiry and charges for
cheque status verification. No one disputes the right of the bank to fix charges
but are these fair and reasonable? The state of affairs in this area reached
such a low ebb that the Reserve Bank had to recently step in and issue necessary
The third basic customer service relates to ensuring that
banks’ dealings rest on ethical principles of integrity and transparency.
Stealth banking, while seemingly offering free products or services, actually
imposes charges under some garb or the other such as renewal fee etc.; undue
enrichment through excessive rounding off; negative option marketing; tying up
of products e.g. compulsory insurance coverage etc.; selling personal
information; etc. - these are some examples of unethical banking practices.
Coupled with non-transparency it leads to an information asymmetry which renders
the banker-customer relationship one of unequals. In this context, it is
pertinent to mention a Supreme Court judgement regarding the non-enforceability
of a contract entered into between two unequal parties.
Although all banks unanimously agree that customer
service is their priority we continue to have breaches of basic regulations on
customer service. As the RBI Governor, Dr. Y.V. Reddy put it:
“statutory regulatory instructions are set out in
letter but sometimes, may not be carried out in spirit.”
It was recognised by the RBI that for a significant,
qualitative and enduring improvement in customer service what is required is not
just statutory regulation but a fundamental change in the overall approach to
Evolution of the BCSBI
For quite some time the RBI has been endeavouring to
assess the quality of customer service at the grass roots level. This evaluation
was necessarily based on anecdotal evidence as revealed by in cognito visits to banks. Although, a number of customer service friendly regulatory
measures were taken in 2004-05, Governor Dr. Y.V. Reddy was of the firm view
that there ought to be a more systematic and on-going evaluation of customer
services and a system of remedial action should be put in place.
The setting up of the Banking Codes and Standards Board
of India (BCSBI) evolved out of this felt need and it is unique in the sense
that it is an independent body promoted by the RBI and the scheduled commercial
banks (public, private and foreign) and the approach is a collaborative effort
rather than a regulator - regulatee relationship.
The membership of the BCSBI is restricted to scheduled
commercial banks and 67 banks are members. These 67 banks cover almost 98 per
cent of the total domestic assets of scheduled commercial banks, the total
number of bank branches in India as also the total number of savings bank
With a view to making the BCSBI an effective autonomous
body, the Reserve Bank is reimbursing fully the Board’s expenses for the first
5 years. The object of the financial support to the Board is to make it
economically strong enough in it’s initial years so that it can function
without feeling the pressure or threat from any single member bank. In the
meanwhile the annual membership subscription being collected by the Board would
serve as contribution to the setting up of a corpus which would ensure that the
Board is self-financing when the RBI funding phases out.
Code of Banks Commitment
to Customer ( CODE)
The BCSBI, together with the Indian Banks’ Association,
has brought out a Code of Bank’s Commitment to Customers which each
member bank has to 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 . Customers should insist that their
branch office supplies them a copy of the Code. I am glad to say that a few
banks have already provided the Code to all their customers but some banks have
still to do so.
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. 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
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.
The Code addresses the issue of Right to Privacy of
Customers and the Indian Banks’ Association is actively in dialogue with the
Telecom Regulatory Authority of India (TRAI) for the setting up of a “Do not
Call Registry”. In the meantime, no bank can disturb its customer for
telemarketing unless and until the customer has given in writing that he desires
to receive such calls from his banker. 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.
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. Each member bank will have to place these policy
documents in public domain.
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.
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 take collaborative remedial action in rectifying
the systemic deficiencies in banks, rather than through a system of coercion and
It will therefore be seen that BCSBI combines the best of
statutory regulation and self-regulation. It is a collaborative effort between
banks and Reserve Bank, not only in its origin but also in purpose. While banks
becoming member of the BCSBI agree to observe the Code, the Reserve Bank will
derive supervisory comfort from banks being members of the BCSBI as it would
look into systemic issues that impinge on customer service and financial
inclusion. The spirit of collaboration is further reinforced by the general
consultative approach adopted by the BCSBI in formulating the Code and in its
Governor Reddy has said 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”.
Banking is a trust based relationship and the banking licence
from the RBI provides an assurance of trust to the public at large. While major
foreign banks operating in India are members of the BCSBI, there are foreign
banks with one or two branches (one bank with as many as eight branches) which
have not sought membership of BCSBI. A recent report in the media stated that
“one-branch” foreign banks feel at home here performing only select banking
functions. These banks by virtue of the banking licence from the RBI collect
deposits from the Indian public, run their banking operations in India with
these resources and remit profits abroad, but do not wish to commit their bank
to providing to their customers minimum banking services under the Code.
Regrettably, there is even a public sector bank which has yet to apply for
membership of BCSBI. If one is serious about protecting customer rights of the
common man and ensuring customer service to him, surely the banking licence
issued to such banks should ensure that individual customers and their precious
savings are not with banks which do not subscribe to an industry wide Code of
Commitment to Customers.
Evaluation of Banks'
The BCSBI has commenced field visits to banks to assess
the actual position with regarding to implementation by banks of the provisions
of the Code. No doubt, BCSBI would endeavour to bring about correction of
systemic deficiencies in customer service by working with the concerned member
bank in a collaborative spirit. But if it is observed that the bank is making
little or no effort to fulfill its commitment to its customers, then in extreme
cases, the BCSBI would not hesitate to publicly censure the bank. It is
altogether another matter as to how the RBI, which is the authority appointing
the Chairman/CEOs of banks, would then judge their fit and proper status for
holding such positions.
As for the customer, no longer should he hold back and
take whatever banks dole out. He has his Charter of Rights with him and
is now sufficiently empowered. If he does not read it or use it he is the loser.
To quote the late Shri M.R. Pai :
“The biggest asset on the balance sheets of banks today
is the ignorance of customers of their own rights, and their reluctance to
fight for them”.
If he sits back and merely grumbles to himself he will be the
sufferer. I am well aware of the fact that absence of complaints does not mean
there are no complaints. I am also aware that customers are afraid to complain
lest there be "retaliation". I would only urge the individual customer
to shed his fears and demand his rights as enshrined in the Code. There are now
several avenues before the customer to seek redressal of his grievances. Let me
list some of these:
Every branch has to have a Help Desk or at
least an officer designated for this purpose whom you can approach for
answering your queries.
There is a Code Compliance Officer whose
name, address and contact numbers are required to be displayed at each
branch. For any perceived violation of the RBI regulations/Code
provisions you can contact him or correspond with him.
If you complain in writing the bank is required
to send you an acknowledgement/response within a week. If your complaint
is over the phone the bank is required to provide you a complaint
reference number and keep you informed of the progress within a
reasonable period of time.
If your complaint cannot be redressed by the
branch manager he is required to escalate the same i.e. promptly refer
the case to higher levels.
If your complaint is not redressed to your
satisfaction by the bank, within six weeks of receipt of your
complaint, the branch staff is required to encourage you to approach the Banking Ombudsman.
The name and address of the Banking Ombudsman
and particulars of the Banking Ombudsman Scheme 2006 is required to be
displayed in each branch. Under the Scheme, in brief, a customer can
file a complaint with the Banking Ombudsman for non-observance of any
regulation, instruction or direction of the RBI and non-adherence to the
Code adopted by the particular bank in relation to banking or other
services. Thus the Banking Ombudsmen would continue to attend to the
redressal of individual grievances and BCSBI does not either duplicate
or supplement the Banking Ombudsman Scheme.
Banks are also covered by the Consumer
Protection Act, 1986 which is a central legislation administered by
State Governments. Consumer Courts have been set up under the Act on a
three tier basis. At the lowest rung is the consumer district forum with
jurisdiction upto Rs.20 lakh. The next rung is the State-level Redressal
Commission to hear appeals from district fora and to consider complaints
involving claims for compensation between Rs.20 lakh and Rs.one crore.
At the apex is the National Consumer Redressal Commission to hear
appeals from the State Commissions and to consider cases involving over
Rs.one crore. The National Consumer Redressal Commission and the Supreme
Court have in the recent part issued exemplary awards for compensation
which ought to have been a wake up call to banks on their dereliction of
duties to the customer. Two judgements of the Supreme Court are worth
In one case the Supreme Court laid down
that it is the banks' prime duty to scrutinise every client who
comes for a loan and assess his credit worthiness. If the basic
work of selection and assessment itself is shoddy and consumers
are lured to take loans, which they may not really need or are
beyond their repaying capacity, then, clearly banks need to
justify their actions for recovery.
In another case the Supreme Court held:
"Nothing is more damaging than the feeling of helplessness.
An ordinary citizen instead of complaining and fighting,
succumbs to the pressure of undesirable functioning in offices………
Therefore, the award of compensation not only compensates the
individual, satisfies him personally but helps in curing social
evil. It may result in improving the work culture and help in
changing the outlook.”
Judgements such as these and the Compensation awards given by
the National Consumer Redressal Commission have not only boosted the flagging
morale of the individual customer but also motivate institutions like the BCSBI
to continue with their uphill task of rectifying deficiencies in the banking
systems in a collaborative manner.
While I have tried to set out some of the key
developments and the problems being faced, let me say that the
institutionalisation of the monitoring of customer service in a collaborative
spirit would progressively result in an improvement in customer service. It may
not be out of place to mention that the Indian Banks’ Association has been
very supportive of the Board in our endeavour to improve customer service in the
banking sector. Our thanks are due to them. I am very confident of getting their
continued support in future as well. Adhering to the regulatory framework
relating to customer service is mandatory and deviations should invite adverse
action. The BCSBI sees itself as following a participatory approach to ensure
that complaints between regulator and regulatee are kept to the minimum. Banks
must realise that if they violate the regulatory framework they could well face
action in terms of withdrawal of certain activities. The role of the BCSBI could
be to use strong suasion to ensure that banks provide the minimum standard
prescribed in the regulatory framework and elaborated in the Code. Bank
depositors also have a duty in that they should shed their chains, built out of
sheer ignorance, and be aware of such aspects of the Code as are applicable to
their bank. Banks in turn must appreciate that they cannot continue to thrive on
the ignorance of depositors. The challenge for the BCSBI lies in the removal of
ignorance among customers and sensitising banks to their own voluntary
commitment to provide quality customer service.