IndusInd Bank Ltd’s fee income increased year-on-year (y-o-y) by 44%, or Rs422 crore, in FY10 and by 47% in the fourth quarter of FY10 alone. The Reserve Bank of India (RBI) gets thousands of complaints on “unreasonable” charges that depositors end up paying for routine banking functions. Consumer complaints have moved the bank regulator into forming a sub-committee to frame guidelines on charges and fees. Your comments.
There is endemic mis-selling in the system. The issue is that there is no sales culture in banks. As a bank, for instance, we have thousands of people from different institutions. They have different ways of selling. Somebody who comes from a foreign bank has a different way of selling. Public sector banks have a different way of selling. The question is: Do we have a common approach? There must be manualized sales processes with stringent guidelines on what you will sell and what you won’t. You must have guidelines and training. You must have surveillance and you must penalize those who mis-sell.
Romesh Sobti, Managing director and CEO, IndusInd Bank Ltd
If you are selling insurance, don’t position it as a fixed deposit product. The whole system is based on incentives. The point is that if you sell insurance, you must look at lapsation. Lapsation rates are a clear indication of mis-selling. So we monitor these. Then we see, why the lapse? There is mis-selling in the system, but it can be rooted out through insistence on training, setting up sales processes, which need to be manualized and implemented stringently.
It’s about insurance, but routine banking charges are also high.
The question here is what is reasonable or unreasonable in terms of the cost structure of the bank. There are operating costs. Say, for a customer who walks in a bank and encashes a cheque may cost Rs100. The same transaction via an ATM (automated teller machine) may cost Rs10 and via Internet Re1. So the point is there is a cost to it and who bears it. The other element is whether cost centres become profit centres. So is Rs100, or Rs200, right? I think it will depend on the cost to the bank. Therefore, I don’t think there can be a uniform cost structure or standardization across the banking system.
The customer also has freedom of choice to go to a foreign bank or a state-owned bank. Then there is balance between cost and service. Take statements of accounts. Millions of statements have to be published monthly, fortnightly, quarterly or half-yearly. Now, there is Internet banking, where you can see and download it. For a bank to separately print, courier and stamp, there is cost involved. I think there is a tussle between the cost and the servicing structures. What level of service you want and how you link it to cost. It’s going to vary for each bank.
The issue is not that, the issue is transparency. Do you know what I am going to charge you? You can blame banks, but you can also blame customers because they don’t read. RBI has got discipline in credit cards, for instance, through MITC (most important terms and conditions). People don’t even read those. So there are two sides to it.
As a customer, why would I bank with IndusInd Bank?
There are many factors that determine where you go. First, the interest rate for savings account customers has been capped at 3.5%. But the rate of interest for fixed deposits may vary. Second is service. Distinction between service levels have blurred. What you expected from a foreign bank, you now get from a private bank. Third could be proximity, but fewer and fewer people are going to branches.
Transaction could be a focus area. Certainly, we match anybody’s service, we match the interest rate and we have a growing branch network. So the issue is making people transact, and that’s why we are giving people incentives to transact. So our products are focused around that. That’s the difference.
You were, in a way, the pioneer of fixed-flexi home loans in India in 2003, when you were with your previous organization. RBI has now raised concerns over such teaser loans.
Yes, in my previous organization we did start it. In IndusInd, we do home loans, but are not a large home loan player.
The concerns of RBI would be whether the customer has fully understood the implications of these loans—that the fixed rate is valid for a year and in the second year, it will go up. The issue is that customers take conscious decisions, but whether they are based on full facts is the concern. If you know for sure, that my interest rate is 8-8.5% today, and a year later, it will increase to 9.5%, and still you have taken a conscious decision, nobody can blame the bank. With teaser loans, there is a benefit—for at least one year. So you are not taking away anything from the customer, in fact you are giving.
RBI has raised concerns that customer may not be able to come up with equated monthly instalments when interest rates rise.
The customers must fully understand the implications of teaser loans. If you have taken the decision after fully understanding it and you are an adult, then whom can you blame?
Do you think teaser loans really work?
I think people take a decision, saying I got the benefit for at least a year. Right? So they work. Why wouldn’t I take 1% less for one year? It’s a straight economic decision.