Growing customer grievances

As far as fair banking practices are concerned, a bank, as an institution, cannot afford to be unfair to its customers as its operations are driven by banking regulations. However, breaches are there, which happen only at individual levels. However, such breaches in delivery of services harm the business of the bank as customers look for alternative channels.

The number of complaints against banks alleging breaches in observing fair practices and failure to meet commitments while delivering products and services to the customers continue to mount. According to the Reserve Bank of India (RBI) data, the banking ombudsman witnessed 58% increase in the number of complaints in 2019-20 (1 July 2019 to 30 June 2020) compared to a year earlier. It got 308,630 complaints against banks in 2019-20 compared to 195,901 in the previous year.

Of the total complaints that the banking ombudsman received, 46% were non-maintainable. In other words, the ombudsman only accepted 54% of the total complaints it received and the rest were rejected.

In banking, complaints were disposed as non-maintainable primarily for three reasons. One, they were not represented properly. Two, the aggrieved party came directly to the ombudsman instead of first trying to resolve with the bank; RBI calls these First Resort Complaints (FRC). Three, the banking customer had resubmitted complaints that the ombudsman had dealt with earlier.

The complaints regarding digital transaction saw an increase of 120% (annualized as it was launched on 31 January 2019) compared to the previous year; as complaints were up from 470 in 2018-19 to 2,481 in 2019-20.

What’s Reserve Bank of India’s (RBI’s) customer grievance redressal mechanism?

Currently, there are three separate ombudsman for banks, non-banking finance companies (NBFCs) and non-bank prepaid payment issuers (PPIs) that are wallets.

Last month, the Reserve Bank of India (RBI) governor Shaktikanta Das while announcing the policy decision of the Monetary Policy Committee revealed that the  central bank  plans to integrate the three separate ombudsman under one centralised scheme to make the grievance redressal mechanism more efficient and simpler under the banner of a ‘One Nation One Ombudsman’ approach.

The RBI would be rolling out the integrated ombudsman scheme in June and this  is intended to make the process of redressal of grievances easier by enabling the customers to register their complaints under the integrated scheme, with one centralised reference point

Notably, in January, the RBI had released framework for strengthening the grievance redress mechanism in banks. According to this framework, there would be regulations which will require banks to provide enhanced disclosure of complaints and pay for the cost of redressal in case the complaints are higher than the peer group etc. The redressal will continue to be cost-free for customers of banks and members of the public.

There is also a complaint management system (CMS) portal operationalized by the RBI as a one stop solution for alternate dispute resolution of customer complaints which were not resolved satisfactorily by the regulated entities.

An Online Dispute Resolution (ODR) system announced by the RBI last year in August is also one of the channels for resolving customer disputes and grievances pertaining to digital payments, using a system-driven and rule-based mechanism with zero or minimal manual intervention. As a step in this direction, authorised payment system operators (PSOs) and their participants were advised to put in place systems for ODR for resolving disputes and grievances of customers.

What are the things to keep in mind before approaching ombudsman for redressal of grievances?

There is a proper procedure envisaged for a customer to approach to the ombudsman. You have to first approach to your bank with the complaint. This is very important. if you directly approach to the ombudsman, the complaint would be rejected. If the bank does not reply within a month of the complaint or you think the reply is not satisfactory, you can then approach the ombudsman. All your correspondence with the bank should be on email.

It’s also important that your nature of complaint falls within the ambit of the ombudsman scheme. For example, the issues like non-payment or delay in the payment or collection of cheques, non-acceptance without sufficient cause of small denomination notes, non-adherence to the prescribed working hours, and levying of charges without adequate prior notice to the customer, among others fall within the scheme parameters.

A complaint to the ombudsman must be filed within a year of getting a reply from the bank. In case you haven’t received a reply from the bank, you should move within 13 months of filing the complaint.

Also, you can’t approach the ombudsman if you have approached another authority such as a consumer or criminal court. However, there is no bar to approaching a court if your complaint fails with the ombudsman.

Can we approach the banking ombudsman with a complaint about insurance facility?

No. For deficiency of service in insurance segment or any third-party product, you should approach the regulator of that product. In case of an insurance product, you need to approach the insurance ombudsman, or it could be the markets regulator in the case of mutual funds.

Mis-selling of financial products  by banks has emerged as one of the major concerns in customer service. What is this mis-selling?

Integration of advanced technology tools in the banking operations has redefined banking to the advantage of customers as well as banks. Today, banking products and services are available to customers at the click of a button. Most of the services are delivered at their doorsteps and products, in common man’s parlance called schemes, are tailored by banks as per the requirement of customers. One of the best things that happened for the convenience of customers is that varied financial services and products are provided by the banks under one roof. For example, today’s customers are not required to look for insurance policy as it is available now at a bank branch. It’s here mis-selling of financial products has emerged. Before elaborating it, let’s first understand that mis-selling is broadly the failure of banks to act in customer’s best interest. Without evaluating the need of their customers, banks handover inappropriate financial product to them.

Notably, the Banking Ombudsman Scheme has included violations of the RBI guidelines on para-banking activities through improper, unsuitable sale of third-party financial products. It’s worth mentioning here that mis-selling of insurance products  under ULIP category was so rampant during 2004 – 2012 that it resulted in a loss of Rs.1.5 trillion to investors. The worst part was that ULIPs were sold by banks as fixed deposit instruments without letting the investors to know the risk of markets associated with their investment.

Are banks mis-selling their own products and services too?

It’s the responsibility of the bank to understand the customers’ profile. Let me explain, a customer approaches a bank for housing loan. It’s considered as the cheapest loan in terms of rate of interest and the option of long term repayment schedule. It has been a common practice at bank branches that the customer is inappropriately counseled by the bank officials and in the name of lengthy procedure to access the loan facility, they discourage him from availing housing loan.  The customer is handed over cash loan facility which is having high rate of interest and repayment schedule is of short duration as compared to the housing loan facility. Even as cash loan provides the customer quick access to the funds, over a period of time, the borrower feels the heat of high equated monthly installments (EMIs). Resultantly, the chances of default in repayment of the loan are high. If, somehow the borrower manages EMIs, but at the domestic front he feels funds starved when it comes to meet other domestic obligations.

It’s very important for banks to conduct adequate due diligence about the customer’s financial situation, risk profile and capacity. They have to ensure that the financial products they are selling meets the customer’s objectives.

So, if you are looking for a financial product or a service, it is very important to seek full details from the bank about various schemes. You should share your financial profile and requirements with the bank so that the bank is able to offer appropriate financial product to you. By sharing the details you would be helping the bank to understand your risk appetite and offer you the best financial solution.