It is heartening to note that Indian banking industry is finally waking up to customer service. The industry is dominated by public sector banks which, till they were not publicly listed, cared only for their owner, the government. After listing, they became aware of another constituency—the investors. But the customers—particularly the retail ones—were never cared for. For companies, however, it has been a different story as best-rated firms can always arm-twist banks in bringing down the cost of money and service. The scene is no different in the private sector even though these banks are more technology-savvy and their executives younger and better paid.
Now, the industry has decided on 10 action points to improve customer service. The most critical of them waiving away prepayment charges on floating rate loans, a major deterrent for customers for shifting to a low-cost loan and a source of income for banks.
At least 80% of home loans are floating-rate loans and banks actively discourage consumers to go for fixed-rate loans as they fear asset-liability mismatches. Typically, the tenure of a home loan is 15 years while average tenure of bank deposits is much shorter. In the process, banks pass on the interest rate risk to the borrowers and the cost of their loan rises and declines in sync with the market rate.
The other important decision is to put the onus on banks to prove the customer’s negligence or mistakes in disputes related to ATM and Internet-based transactions. The banking regulator and the national bankers’ lobby will also explore whether monetary compensation can be offered for mental harassment suffered by customers. The most interesting aspect of the entire exercise is that banks have voluntarily agreed to adopt these and there is no directive from the regulator which has been very persuasive on this.
Protection of consumers of financial services is a global phenomenon now. An Organization for Economic Cooperation and Development-led task force on financial consumer protection, which is open to all Group of Twenty (G-20) and Financial Stability Board members, started work on developing principles of consumer protection in April and the final draft will be submitted to the G-20 finance and central bank governors’ meeting in October.
In normal course, competition forces banks to look after customers. But in India, due to entry barriers, there aren’t many banks and the focus has always been expansion of banking services and not their quality, as 50% of the population still doesn’t have access to banks. One hopes that with a new set of private banks setting shop soon, there will be a balance between expansion and quality of service.
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