As a banking customer, expect better services in times to come—from getting a fixed timeline for loans to being able to remit money at lower cost, there are many suggestions in the pipeline that would make your banking life easier. You can even add your own suggestions to the existing set, put up on www.rbi.org.in.
Last week, the Reserve Bank of India (RBI) committee, formed under M. Damodaran, former chairman of Securities and Exchange Board of India, came out with its report on customer service in banks. It is open to public comments till 27 August.
The report suggests some sweeping changes, which are mostly to the customers’ benefit but leave some questions unanswered. Once RBI approves these suggestions, banks would have to adhere to them. Here are some major recommendations.
Fixed timeline for loan application
Most banks claim to take merely a few days to sanction a loan, but the reality is very different. A loan promised within a week could take at times even a month before it is sanctioned to you.
Taking note of the discrepancy between the promise and the delivery, the committee has suggested that banks inform loan customers about the timeline of the loan at the beginning of the process itself.
If there is any delay in delivery of loan, the bank should own up responsibility for the lapse.
“Banks have to adhere to the timeline in case of priority sector loans. But there is no timeline for retail loans. We would be happy to follow any timeline that the apex bank sets for each category of loan, including retail loans,” says K.R. Kamath, chairman and managing director, Punjab National Bank.
The problem: The committee has stayed away from suggesting any time frame for disposing various kinds of loans. This may mean that each bank can fix its own timeline for each category of loan.
Home loan flexibility
The report recommends that you as an existing home loan borrower should have the flexibility of shifting from floating to fixed rate or vice-versa at least once during the tenor of the loan at reasonable cost. “The option of switching from fixed to floating or vice-versa at a lower cost would certainly benefit customers, particularly those who can time the switch perfectly,” says Kartik Jhaveri, founder and director, Transcend Consulting, a private financial planning and wealth management firm. But it’s easier said than done.
The problem: When recommending a shift from fixed to floating, the committee has not provided any tentative rates which can be described as reasonable. “Many banks only offer home loans on a floating basis. In such cases, how would banks offer the facility to switch between the two options,” says S. Raman, chairman and managing director, Canara Bank.
Agrees H.S. Upendranath Kamath, chairman and managing director, Vijaya Bank. “A customer may decide to switch from floating rate to fixed rate when interest rates are at the lowest. The situation would not suit banks as they would not be able to earn. Hence, the charge for switching from one to another should be left at the discretion of the bank.”
Different rates: Even when the risk profile of customers are similar, often banks charge a higher rate from existing borrowers compared with new home loan seekers.
Taking note of a barrage of complaints with the banking ombudsman and coming down on this practice, the committee wants banks to follow a non-discriminatory and transparent method and plug such anomalies.
Safety of deposits
You can deposit more in your bank and not worry about its safety. Deposit Insurance and Credit Guarantee Corp. provides cover for bank deposits of up to Rs 1 lakh as of now. It has been suggested that the present limit of Rs 1 lakh be increased to Rs 5 lakh and if possible be extended to the entire amount of bank deposits.
The insurance is applicable only if a bank fails, but given the strong fundamentals of the Indian banking system, the possibility is remote. Hence, the enhanced cover would make sense only for those who are banking with small private sector banks or cooperative banks and some foreign banks amid continued global economic pressure.
Annualized rate for FDs
The maturity periods of fixed deposits (FDs) vary and are often slightly above a year. While some banks will offer FDs for 390 days, others offer 499 and 510 days’ FD. As per the report, it’s difficult for the customer to calculate the actual rate of interest for varying maturity periods, Hence, the report recommends that all FDs should indicate the annualized rate of interest along with the penalty for premature withdrawal. The suggestion is expected to help the investor understand the product better and compare similar products.
Says S. Chandrakant, a pensioner from Mumbai, “Mentioning the annualized rate of interest on FDs is a good idea. It will become easy for people like me to decide which bank to choose and which maturity to select. At times, it gets very confusing.”
Lower remittance cost
Most bank branches are now linked to the core banking solution, which enables you to avail banking services from non-home branches. However, most banks charge you for providing this facility. For instance, the State Bank of India charges a minimum of Rs 25 if you deposit some amount in a particular account which is maintained in some other branch of the bank. The Damodaran committee has expressed surprise on the practice and suggested lowering these charges, particularly in cases of small remittance amounts.
The report also has suggestions on the use of technology in customer service. For example, the report says debit and credit cards should carry a photograph and signature of the cardholder along with the address and unique identification number. With such details on the card, it could be used as a tool for know-your-client compliance.
Other recommendations are regarding the grievance redressal system and the banking ombudsman scheme. The report has made some general suggestions on passbooks, account statements, maintenance of average balance in savings bank account, service charges and inoperative accounts.
It’s possible that all the recommendations may not see the light of day but that shouldn’t stop you from coming up with a good one.