Who will protect the privacy of retail customers?

Depositors paid the price in the form of low interest rates because banks weren’t earning much to pay them well.

It’s now nearly a decade old battle with the Reserve Bank of India and banks on one side and a bunch of commoners like us on the other side. The reference here is a public interest litigation, which is going on against the RBI and banks, filed in 2015 where the petitioner is questioning why banks should not reveal the names of the top borrowers. This is a valid ask because as depositors we should have the right to know at least the top 20 borrowers by name and exposure of every bank. The context of this litigation is the asset quality issues that marred banks between 2014 and 2019. The incident indirectly had a huge implication on depositors.

Backstopped by deposits

Depositors had to pay a price in the form of low interest rates because banks weren’t earning much to pay them well. In fact, most of them especially those in the public sector were in the red because of the asset quality issues. Given that Indian banks are built on deposits unlike how banks in the western world work, the question raised in this PIL is valid.

Deposits account for 70 – 80 percent of a bank’s liability, which in turn gives them the strength to lend. Yet, the RBI and banks don’t want to share this data to people like us and take shelter under the secrecy rules which protect the identity of borrowers. The problem here is that the secrecy rules are also one-sided. While large corporate borrowers are being sheltered by their right to privacy, but what about common people like us?

Nothing’s secret or confidential for retail customers

We get pounded with calls from banks and NBFCs asking if we want to a transfer loans out from the existing bank. The moment you scroll down an advertisement for a banking product, you get a call from the bank trying to sell you the product, whether or not you left your contact details with the website.

While the Reserve Bank of India is working hard to ensure that privacy is maintained for large borrowers, as retail customers we are equally entitled to as much secrecy of our information.

But who takes care of us?

Add to this is a concept of account aggregator, a business which became licensed by RBI in 2019. The initiative hasn’t taken off in the manner projected even after five years of formally coming into force. The issue once again goes back to the problem of being lopsided. An account aggregator charges a fee to a retail user to enable banks to access her data. The value proposition offered here is simplification of processes involved in handing out a loan. On the other hand, while banks also pay a fee to the account aggregator, what they get in return is details of all bank accounts and financial transactions of a retail customer.

How do the scales balance?

While one could argue that the retail customer shares data with the account aggregator by choice, in the world were data is the new oil, one can never be sure that data is being treated as preciously as oil. As commoners we can neither feel assured that our data is safe, nor is there a recourse when our privacy is compromised.

Added to that is the soon to become unified lending interface platform proposed by the regulator a few weeks ago. While the platform is yet to take shape, there is a possibility that it might track us beyond just the financial data available in the banking circles. How exactly is our privacy protected? With fast paced digitization, the regulator will need to solve this problem if financial inclusion must penetrate faster. The solution doesn't stop with ensuring that data is sought through consent; it needs to go a step further to empower the customer with the rights to pursue legal action when privacy is violated.