RBI panel raises alarm on poor customer care



A committee appointed by the RBI has recommended penalties for entities that fail to meet customer service standards, while those making upgrades must be incentivised. The panel also called for a clear definition of complaints to improve customer service at banks and other regulated entities

A committee appointed by the Reserve Bank of India (RBI) has issued recommendations to improve customer service standard at banks, non-banking financial companies, and other regulated institutions. According to its proposals, penal action should be taken against entities if they fail to meet the standards, while those making systemic upgrades must be incentivised.

The committee, chaired by former deputy governor B.P. Kanungo, was established in May 2022 to assess the state of customer care services, evaluate the adequacy of existing regulations, and propose measures for improvement. It submitted a report on 24 April, and the findings were published on Monday.

A key concern highlighted by the committee was the lack of enforcement action against regulated entities failing to meet customer service requirements, despite a comprehensive regulatory framework.

“The current disincentive mechanism through the framework for Strengthening Internal Grievance Redress Mechanism in banks is not functioning effectively and the number of complaints under RB-IOS (Reserve Bank –Integrated Ombudsman Scheme) is consistently rising," the report said.

While the committee has recommended penalties for entities having deficient customer service standards, it found that most organizations were merely redressing individual complaints, since there were no incentives on improvements to ensure better customer service.

“Customer service regulation should be consolidated on the principle of the same activity and same regulation, and apply to all REs depending upon the activity being undertaken by them, irrespective of the category of the REs," it added.

Highlighting the absence of uniformity among regulated entities in classification of complaints, the panel said some entities were categorizing certain complaints as suggestions or queries. The lack of a standardized definition is a root cause for such discrepancies, it added.

To address this issue, it has urged RBI to establish a clear definition of what constitutes a complaint under the Internal Grievance Redress mechanism. This will offer a comprehensive view on the volumes, types, and the nature of complaints, and allow an accurate assessment of the state of customer service, the panel said.

Furthermore, RBI should develop and publish a customer service and protection index , which would rate customer service quality through a single score. “The index may cover dimensions like adequacy of regulatory and institutional framework in place, customer experience, efficacy of the grievance redressal, under both Internal Grievance Redress mechanism and Alternate Grievance Redress, the extent of customer education and awareness, etc."

RBI should assess the quality of customer service through periodic and regular thematic studies, it said, adding that RBI, during the supervisory process, must take a view on the ‘reasonableness of charges’ levied by these regulated entities.

According to the panel, while regulated entities should take necessary steps to periodically update know your customer (KYC) guidelines, it must be ensured that operations in the account are not halted.

The regulated entities, it said, should maintain a centralized KYC database of all customers, linked to a unique customer identifier, for instance, a customer information file. This, it said, will obviate the need to submit KYC documents repeatedly for availing multiple facilities from the same entity.

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