Ramesh Pathania/Mint
Ramesh Pathania/Mint

Incognito bank visits to check service: RBI

Central bank may even consider regulatory action against banks if mis-selling of products continues

To monitor banks’ customer service and handling of consumer complaints, the Reserve Bank of India (RBI) will soon undertake incognito visits to bank branches, stated a press release issued by the banking regulator on 16 February.

At the annual conference of the banking ombudsmen at Thiruvananthapuram, Raghuram Rajan, governor, RBI, said the grievance redressal mechanism must be integrated in the business operations of banks. He said grievances were also an important input into regulatory and supervisory processes and customers must have the right to access banking services and grievance redressal machinery—be it a bank’s internal mechanism or the banking ombudsman—so that they are not “excluded" from the banking fold, according to the release.

“Every bank has an internal grievance mechanism that registers a consumer complaint at a branch level and automatically escalates it if not resolved within a specific time," said Mayank Mehta, executive director, Bank of Baroda. “In fact, most banks have now appointed an internal ombudsman to adjudicate objectively," he added.

Rajan had also said that a high level of automation would not only allow customers access the grievance redressal machinery anytime from anywhere but also reduce the cost of redressal. Harsh Pathak, a practicing advocate at the Supreme Court who handles cases related to the banking and financial industry, said, “The entire financial industry has a long way to go in terms of effective mechanism for customer service and handling of consumer complaints. That the RBI plans to review the level of customer service is a significant step. Now that most transactions happen electronically, record keeping and transparency is important. That can improve customer service and the redressal mechanism."

Rajan also said that the RBI was exploring ways to resolve customer complaints across regulators through forums such as the Financial Stability and Development Council.

Apart from looking at customer complaints, RBI also plans to undertake a review of how banks have implemented the Charter of Customer Rights, which include five rights—right to fair treatment, right to transparency, fair and honest dealing, right to suitability, right to privacy and right to grievance redress and compensation.

“The Charter is available on bank websites and branches. We also incorporate these in training programmes," said Mehta.

The right to transparency, and fair and honest dealing states that the financial services provider should make every effort to ensure that contracts or agreements are transparent, easily understood and communicated well. A product’s price, associated risks, terms and conditions that govern use over its tenure and the responsibilities of the customer and financial service provider have to be clearly disclosed. Further, the customer should not be subject to unfair business or marketing practices, coercive contractual terms or misleading representations. The Charter also says that products offered should be appropriate and based on an assessment of the customer’s financial circumstances and understanding.

But mystery inspections have revealed the contrary. According to the press release, Rajan said that findings of some recent incognito visits by RBI to check on sale of third-party products by banks and a study undertaken by some academicians and consumer activists hinted at mis-selling of products, especially insurance. RBI might consider regulatory action against banks if they continued mis-selling their products, he added.

“Continued mystery shopping will help if followed by punitive action. Internal mystery visits by banks themselves have not yielded desired results. Therefore, RBI stepping in is a positive," said Manoj Nagpal, chief executive officer, Outlook Asia Capital, a wealth management firm.

In the same conference, RBI deputy governor S.S. Mundra said that with developments in technology, account number portability could be possible. If that happens, a bank customer will have more power to move away from a bank that she is dissatisfied with in terms of service, the press release added.

The underlying message seems to be that customer service is a business need for banks. The central bank’s reiteration of this is good news for you, the consumer.