A little more than a year after it had set up a panel to look into customer service in banks, the Reserve Bank of India (RBI) released the report last week. It’s fairly well known that half of India’s population doesn’t have access to banking services, but what doesn’t get highlighted is the fact that even those who have access to banking services do not get a fair treatment.
The dice is heavily loaded in favour of the banks and the onus is always on the customers to prove they are right.
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So, when a cheque is lost by a bank, it normally asks the customers to issue another cheque but when a cheque cannot be honoured even for a technical reason (either it’s not signed or post-dated by oversight), the customer is penalized.
The panel, headed by former capital market regulator M. Damodaran, has made quite a few interesting recommendations. The most important of them is perhaps offering floating rate home loans on a non-discriminatory basis. When a customer opts for a fixed rate loan, normally she pays a little more than a floating rate customer, but her EMI (equated monthly instalment) remains unchanged for the entire tenure of the loan. In contrast, a floating rate loan is linked to the benchmark rate of a bank, based on its cost of funds. With the change in cost of funds, the benchmark rate changes and so does the floating rate. This means, it can rise or fall during the tenure of a home loan.
Normally banks are quick to raise a floating rate loan to pass on the burden of cost of funds to the customers, but slow in paring it when the fund cost goes down. But more important than that, all floating rate customers are not treated on a par as banks often offer discounts on their floating rate loans to woo new customers, but the existing customers don’t get this benefit.
Other meaningful recommendations include creation of a toll-free common call number for all bank customers, prescription of service charges for basic services and raising the insurance cover for deposits fivefold. RBI has asked for suggestions on these recommendations. Instead of making any suggestions, I would like to narrate some incidents to illustrate how unfair Indian banks are in treating their customers.
Last week, a senior citizen in north Bengal, who has been a customer of a state-run bank for decades, found a cheque issued by him was returned by the bank for insufficient funds.
Under the Negotiable Instruments Act, this is a criminal offence and can attract a two-year imprisonment and or a penalty twice the amount of the cheque. Only when a cheque is issued to a charitable trust as a gift or donation or for buying shares, is there no offence if it is dishonoured as it is not issued to discharge of legally enforceable debt or other liability.
In this case, the customer had sufficient money and yet the bank returned the cheque and initially the branch manager even refused to admit the mistake. Only after threatening to take up this matter with the banking ombudsman could the customer extract an apology from the manager. As the cheque was returned, his creditor was denied money. Besides, the customer’s reputation was tarnished. Will the bank do anything to compensate for this?
Now, another incident of a student at Mumbai’s St Xavier’s college who did not have any bank account, but wanted to buy a demand draft to pay the college’s annual fee. The teenager visited half a dozen bank branches—public sector, private and foreign—to buy the demand draft, but all of them shooed him away, saying they would not be able to sell him a draft since he did not have any bank account. They even cited RBI norms to support their decision.
Now, that was a blatant lie. The banking regulator insists on a bank account only when one wants to buy a draft of Rs 50,000 and more. After much persuasion and using his father’s “influence”, he could buy the draft paying 5% commission. Can RBI and even the banks punish their lazy and ill-informed managers who harass customers and refuse to earn fee by doing legitimate business?
Finally, the story on the plight of a homemaker in Bandra, a Mumbai suburb, who made the mistake of approaching a new-age bank to open a demat account. Two junior executives visited her home and promised to teach her how to do online trading, but after the demat and savings bank accounts (where the money will be kept to buy stocks and pay the demat account fee) were opened, these executives disappeared. They were either down with viral fever or busy attending other customers till they left the bank.
The lady could not operate the online account because of some incomplete information furnished on the application form. When she declined to own up to the mistake and forced the bank to get the papers from its back-office, it was found that the forms were filled by the bank executives and not the customer. The bank was not forthcoming to rectify the errors, but meticulous in charging the quarterly fee for the non-operational demat account.
After more than a year, when she finally decided to close the account, the bank declined to do so and asked for at least three months to close it as it involved a lot of work. To her horror, she discovered a bank where it’s not easy to open an account (incidentally, it is very strict when it comes to know your customer norms), difficult to operate it even after opening and impossible to close it!
One only hopes things will change now. Amen.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as Mint’s deputy managing editor in Mumbai. Comment at firstname.lastname@example.org