Customer service standards at banks in need of an overhaul

Customer service standards at banks in need of an overhaul

In May 2022, the Reserve Bank of India (RBI) constituted a committee under the chairmanship of BP Kanungo, the then deputy governor to review the customer service standards in the entities regulated by the central bank.

The committee’s report published on the central bank’s website recently merits discussion.

The RBI is a full-service central bank and has multiple functions: monetary policy, currency management, public debt management, financial inclusion, forex reserve management, etc. One of its most underrated and yet highly important functions is to ensure that banks and financial institutions are providing basic customer services to the public.

Genesis of customer services regulation

The first working group to review customer service at banks was appointed by the government in 1975. The guidelines recommended by this group led to the first set of regulations on providing services at banks. It was followed by the constitution of committees in 1990, 2004, and 2010, each of which did its bit to improve customer service at banks. The central bank has followed up on the recommendations of the committees to issue guidelines on deposit accounts, financial inclusion, service charges, etc.

In 2014, the central bank issued a Charter of Customer Rights, which specified five basic rights for bank customers: the right to fair treatment; the right to transparency, fair and honest dealing; the right to suitability; the right to privacy; and the right to grievance redress and compensation.
The central bank also established a banking ombudsman in 1995 for the redressal of customer complaints against banks. The ombudsman scheme was later extended to regional rural banks (RRBs) and scheduled primary urban cooperative banks. Later, the central bank brought all the above, along with non-banks and payment system participants, into an integrated new scheme in 2021. In 2015, the central bank also instructed all the banks to have an internal ombudsman for addressing customer complaints. The central bank established a complaint management system (CMS) in 2019 as a 24x7 online, end-to-end automated, one-stop solution for lodging and redressing customer complaints.

The central bank also made institutional changes within itself. It established a customer services department in 2006, which was renamed the consumer education and protection department (CEPD) in 2014. The CEPD oversees the operations of 23 RBI ombudsmen offices spread across the country and the consumer education and protection cells in 30 regional offices.

The recent committee was established to review customer service standards as the financial landscape has changed significantly since the last committee in 2010. Digitisation has changed the landscape of banking and financial transactions. There is a need to review customer service standards in this new digital setting and suggest regulatory measures to ensure the standards are met. The digital setting also means that new technologies could be used to enhance customer services. The committee was also asked to map India’s service standards with global best practices.

Regulations followed only in letter

The committee has made several observations on the current service standards and made recommendations to improve them in the future.
First, the committee noted that most regulated entities (RE) follow RBI instructions/regulations on customer service "more in the letter than in spirit". The central bank neither takes any action against REs who are deficient in customer service nor does it incentivise the REs who address customer service sufficiently. The end result is that most REs follow minimum customer service standards and do not go beyond the letter. The committee has recommended that the central bank move from rules-based regulation to principles-based regulation. Currently, the central bank mentions specifics of customer service, which leaves gaps. The central bank should instead specify broad principles of customer service and let REs implement them in their own way. There should be a transparent system of incentives and disincentives in place that helps filter performers from non-performers.

Second, given the rise of fintechs which are non-banks, the customer charter should be extended to NBFCs too. The deposit insurance also applies to traditional organisations and could be extended to bank-prepaid instruments and later to non-bank ones as well.

Third, the central bank may develop and publish a ‘customer service and protection index’ that gives a single score to customer services. The central bank should also regularly assess customer service by conducting regular studies across REs.

Fourth, quite a few complaints are registered about the levies/charges imposed by REs for their services. The committee notes that while REs should be free to impose their own levies, they should be reasonable. In its supervision tasks, the RBI assesses whether the charges are reasonable or not.

Ombudsman scheme falls short

Fifth, the internal ombudsman (IO) scheme has not met expectations. The committee observed that only 24.7 percent of complaints processed by the RBI’s ombudsman had been vetted by the IOs. Most IOs also do not act independently as per regulations and uphold the decisions taken by the REs.

The committee has recommended that the Indian Banks Association (IBA) or RBI create a fund and pay salaries to IOs from these funds. Some REs have established digital platforms for internal complaints, whereas others continue with the manual system. The committee has suggested setting up one common RE-agnostic digital platform for all complaints that are routed to the designated entity.

Apart from recommendations, the committee analysed the number of complaints received by banks from 2019-20 to 2021-22. There have been 1.04-1.11 crore complaints in the last three years, with nearly 75-80 percent against public sector banks and 20-25 percent against private sector banks. Within PSBs, SBI dominates with a share of 35 percent and within private banks, ICICI Bank dominates with a share of 4 percent. The committee also conducted a survey of bank customers and found most complaints were related to account operations (22 percent) followed by technology-related issues (16 percent). The committee has made separate suggestions to improve customer service for all individual types of complaints.

To sum up, the attention of most central banks remains on monetary policy and financial regulation.

The RBI is perhaps one of the few banks that also performs the function of setting customer service standards. In this regard, the RBI’s constitution of the committee to review customer service standards is timely and welcome. The committee has made several recommendations to improve customer service at REs. The central bank needs to accept and follow them quickly given how customers suffer due to ignorance and negligence by banks in providing basic customer services.

(Amol Agrawal is faculty at Ahmedabad University)