Protection of banking consumers from hassle free transactions has become a serious concern particularly for public sector banks in India. Negligence and inefficiency on the side of banking employees is cause to anger and anguish of major account holders in these banks. In contrast, functioning of private banks is up to the mark but it is seen that these banks charge a high rate of interest and collect extra fees from their consumers. Nevertheless market share of private banks is continuously rising. Surprisingly ethical aspects are missing in both sectors and have a subject matter of research. Except a few incidents, over the years, bankers are failed to implement the existing rules against dishonest and disgraced employees. Prevailing on present scenario, banking environment in India has been suffering. Having been specific RBI guidelines for the protection of consumers but it is hardly to materialize due to unwillingness of consumers about their rights and duties specifically in rural areas. In order to avoid such types of misbehaves, and restore consumers confidence there is no means to protect them except to grow consumers’ awareness.
The banking sector in India is emerging as a highly competitive field. Smooth banking operations are the life of a nation’s economy. Private sector banks offer innovation through their banking solutions and financial services so as to attract more and more customers to opt for their services. Before banking sector reforms, banking activities were confined to limited consumers and operated with local jurisdiction mainly. Thereafter banking business spreads over the country because of taking several measures including two phases of nationalization of banks in between 1969 and 1980. In India the major changes is seen by our people after implementing second generation reforms in 1992-93 by acquiring the distinction of being a watershed year for the banking industry. The changing needs is crossed over the national boundary and most of PSBs have a global presence in consistent with international standards and growing demands. But consumers’ care is still frustrating. Grievance cell is not in active mode. It is needless to mention that average time spending per transaction in PSBs is more than that of private sector banks. That’s why long standing queue is followed through in these banks. Staff strength is adequate but they are highly reluctant to provide sincere services and devotions to the customers. Besides, there is a wide disparity between savings rates and lending rates. This should be modified and is considered as a main hindrance for expanding banking business in India. Conversely, it encourages investors’ concentration to capital market. There were formed various committees under different names since inception of the RBI but these committees have been given much efforts on bankers profitability, liquidity and transparency not on consumers sovereignty and flexibility. So, consumer movement is the key.
The objective of this article is sought to be promoted and protected by the banking consumers’ codes to be established throughout the country. Keeping consistent with this, we have to create awareness against awkwardness among the banking consumers about their rights and duties and come back the investors’ confidence in money market. Besides, to review the existing RBI guidelines regarding the safeguarding measures of the banking consumers and to check whether it is adequate for maintaining the friendly atmosphere of the depositors and lenders or not. If there is supposed to have some lacunae in banking environment, then found out the areas where the problems exist and recommend the same to the appropriate authorities for taking the corrective actions at right time. An ideal step should be to form a harassment free banking system in India. In order to precede it, revive consumers’ forum for fight for their ensuring rights and to seek redressal so as to reduce unfair trade practices.
PHASES OF INDIAN BANKS
Banking system in India has evolved in the last decade of the 18th century. It has long and colorful history behind its origination. Indians had established small banks, most of which served particular ethnic and religious communities. From 1786 to now, the journey of Indian Banking System can be segregated into three distinct phases. These are
- Early phase from 1786 to 1969 of Indian Banks i.e. pre-nationalization phase.
- Nationalization of Indian Banks and up to 1991 prior to Indian Banking Sector Reforms i.e. post nationalization phase.
- New phase of Indian Banking System with the advent of Indian Financial and Banking Sectors Reforms after 1991 i.e. banking liberalization phase.
First phase: During those day’s public has lesser confidence in the banks due to socio-economic and political- legal factors. Lack of protection of principal and interest was the key reason. Moreover, these banks are privately owned and managed by them. As an aftermath deposit mobilization was slow and funds were largely employed to small traders without any security. Therefore a large number of banks were liquidated and depositors had lost their savings. Abreast of it the savings bank facility provided by the postal department was comparatively safer.
Second phase: Successive nationalization of banks has gained the confidence level in the people of India. The government of India took the major steps in this Indian Banking Sector Reforms after independence. To regulate Banking Institutions in the country the following steps are taken by the government of India:
1949: Enactment of Banking Regulation Act;1955: Nationalization of State Bank of India;1959: Nationalization of State Bank of India’s Subsidiaries;1961: Insurance cover extended to deposits;1969: Nationalization of fourteen major banks;1971: Creation of Credit Guarantee Corporation;1975: Creation of Regional Rural Banks;1980: Nationalization of Seven banks with deposits over Rs 200 crore.
After the nationalization of banks, the branches of the public sector banks of India rose to approximately 800% in deposits and advances took a huge jump by 11000%. Banking in the sunshine of government ownership gave the public implicit fails and immense confidence about the sustainability of the institutions.
Third phase: This phase has introduced many more products and functions in the banking sector in its reforms measure. In 1991, under the chairmanship of Mr. M. Narasinham, a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with private sector banks including foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking are introduced. The entire system became more convenient and swift. Time is given more importance than money.
PRESENT BANKING SENARIO
Banking system of twenty first century is full of technology savvy based with lots of products and processes. Among the banks only consumer oriented banks are highly profitable and consumers are extremely satisfied about their top class services. In India, public sector banks such as SBI, PNB, BOB etc. have been providing such types of excellent services as people likely expected from them. These banks have been taken much care to their depositors and lenders. Meanwhile performances of others banks are not promising because of lack of confidence and faith of consumers in these banks. The nature of activities also support in this regard. Misposting of transactions is happening often in PSBs. Privacy of account holders in India is doubtful. Any consumer or outsider can enter to others’ data banks and to collect not only relevant information silently but also predict rivals’ future strategies. Besides cheque clearance time is absolute unproductive and there is no pre-plan for cheque less society. In fact ATM stations save the valuable and tedious time but its maintenance and service capability is questionable. It is seen that having been lockers in these banks but their managerial personnel embarrassing the consumers unnecessarily. Each commercial bank has a separate merchant banking division but its usefulness is very low due to shortage or unavailable of experts in different fields. In our country this part of banking system is still underdeveloped and far behind as compare with private sector banks. Though, depository services by Indian banks are exploring the Capital Market in India. Just as one opens a bank account, an investor can open DEMAT account to avail of depository facilities by using technology. When you wish to buy or sell securities in Indian secondary market. Last but not least that second fastest growth rate, inflows of huge FDIs and port folio investments in India have been enriched the financial health of Indian banks.
AREAS OF INDIAN CONSUMER BANKING UNREST
In Indian economy service sector have been providing at maximum contribution towards the national GDP during the last decade. Among these, banking service is most important one. This particular industry has grown at a faster speed due to unavoidable backgrounds. While at the same time the service quality is not reached at a satisfactory level rather deteriorating. Common people raising fingers about nature of services and there is inequality between what is expected, what is promised and what is actually given in terms of cost and service. R.D.Sharma & Ekta Verma (2000) have pointed out the various areas of banking consumers unrest regarding deficient banking services are (i)Deterioration in counter service(ii)Opening Accounts for a Notice, a hard task(iii)Dishonour of Bank Draft(iv)Fallacy in the maintenance and operation of Lockers(v)Payment of cheque despite of stop notice(vi)Forgery of signature(vii)Security(viii)Illegible bank statements in Passbooks(ix)Problems related to cheque(x)Negligence
THE CONSUMER MOVEMENT
The consumer movement refers to the efforts by the people to protect and promote the interests of the buyers under welfare motivated patronage of the state and consolidating the newly emerging consumer jurisprudence in India. The concern for consumers’ protection is necessitated by often harassments followed by the bankers’ employees like passing of accountability; neglect the consumer segments; absence of professional tones; express self-glorification; infrastructural lacunae; etc. and gradual elimination of the atmosphere of consumers’ market. However, the consumer are becoming increasingly aware of these; they are united and forming vigilance committees, consumer’ councils, consumer co-operatives etc. In spite that lack of leadership and management, lack of financial resources, lack of permanent organizations, consciousness limited to urban areas, lack of consumer education and unhealthy political interference are the major weaknesses that still allow enough scope for exploitation of the consumers.
The customer protection Act, 1986 defines the rights of consumers in India and is applicable to banking services as well. The CP Act seeks to promote and protect the six basic rights of consumers: (a) to be protected against the marketing of goods and services which are hazardous to life and property (b) to consumer education (c) to be informed about the quality, quantity, standard and the price of goods (d) to be heard and to be assured that consumers interest will receive due consideration at appropriate forum(e) to seek redressal against unfair trade practice (f) to be assured, whenever possible, access of variety of goods at competitive price. It is needless to mention that consumer courts provide redress only in cases of products or services for personal use; defects in products used for commercial purposes are not entertained. Customer services expected to be ‘pro-consumer’.
Some of the active consumer organizations
(i)Mumbai Grahak Panchayat; (ii)Consumer Guidance Society of India, Mumbai; (iii)Common Cause, New Delhi; (iv)Voluntary Organization in Interest of Consumer Education, New Delhi.
MERCHANT BANKING FUNCTIONS
Accepting deposits from public and paying advances to borrowers are common activities of a commercial bank. Meanwhile, Merchant Banking is a service oriented industry and have a separate division under the same roof. Merchant Banks all over the world carry out the same set of services. Merchant Banks in India carry out the several functions and services are, Corporate counseling; project counseling; pre-investment studies; capital restructuring; credit syndication; issue management and underwriting; portfolio management; working capital finance; acceptance credit and bill discounting, mergers; amalgamations and takeovers; venture capital; lease financing; foreign currency finance; fixed broking finance; mutual funds; relief to sick industries and project appraisal. Though, Indian bankers will miles to go for achieving the prevalent standard in USA and Europe in this field. Mr. Pranab Mukherjee, the then Finance Minister of India castigated the banks in 1984 in the following terms: “Unsatisfactory recovery, deteriorating quality of customer service, sluggish flow of information from field levels and the increasing number of bank frauds were the problems that should be effectively contained by the senior managers of the banks.” The increasing number of bank frauds reflects the ineffectiveness and negligence of bank management in protecting and monitoring customer interest.
PARAMETERS FOR CUSTOMER SATISFACTION
Customer satisfaction can be perceived in the ways of their long experiences, body expression, gestures etc. but difficult to measure it certainly. Though, it varies from consumer to consumer and bank to bank. A few Indian banks have been given much care and welfare about consumers on priority basis since inception of businesses. Consumers’ protection is directly affected to stability and profitability of the banks. A style of service can satisfy some consumers but others may not be satisfied. That means satisfaction depends on psychological aspects, mental set up of the consumers and individual segment. Besides, consumers’ expectation plays an important role in this regard. Service industry such as banking business is much relied on service quality, timely deliveries and customer protection. An ideal means to conquer the consumers mind is to provide speedy and quality services to them at competitive price. Some measures are likely to be undertaken such as training the personnel, corporate governance, disclosure norms; emphasize on CSR that are very special for internal management and outsiders. Nevertheless, unique accounting reporting standards should be formed so as to provide meaningful picture to the external users.
Bank customers may soon get better services as RBI is going to form a new set of rules based on M. Damodaran committee report. The RBI had announced to form this committee in the monetary policy of last financial year. According to the committee report, not only customer service level will be enhanced but also strong steps against inefficient officers will be taken. Besides this, banks may be asked to resolve various customer grievances within 24 hours after the registration of complaint. The committee report suggests dealing with those problems of customers which are related to new techniques such as using ATM and credit cards. The banks will be required to tell the customers beforehand about the expected time they would take for providing various bank services, the report said. There are 15 offices of banking ombudsmen spread across the country. The panel is also said to be in favour of giving power to the banking ombudsman. Though the ombudsmen have the right to listen to the customer complaints, it lacks in authority to act against banks. According the sources the recommendations of M. Damodaran Committee will be included in the annual monetary policy of May, 2011.
Mobile banking transactions and operative guidelines for banks in India
Introduction-mobile phones as an alternative delivery channel for extending banking services have off-late been attaining greater significance. Only licensed banks and have a physical presence in India can serve the same to its account holders. The guidelines issued by reserve bank on “Know Your Customer (KYC)”, “Anti Money Laundering (AML)” and Combating the Financing of Terrorism (CFT) from time to time would be applicable to mobile based banking services also. Banks shall file Suspected Transaction Report (STR) to Financial Intelligence Unit- India (FID-IND) for mobile banking transactions as in the case of normal banking transactions. The objectives of mobile banking framework in India would be to enable funds transfer from account in one bank to any other account in the same or any other bank on a real time basis irrespective of the mobile network a customer has subscribed to. To meet this objective, a robust clearing and settlement infrastructure operating on a 24*7 basis would be necessary. Banks are required to maintain secrecy and confidentiality of customers’ accounts. Customers’ complaints / grievances arising out of mobile banking facility would be covered under the banking ombudsman Scheme 2006(as amended up to May, 2007) and settle the disputes within jurisdiction in which the events occurred.
Banking consumer codes
This is a voluntary code, recommended by Indian Bank’ Association for adoption by credit card issuing member banks/institutions or their associates. It is expected that this fair practice code will act as a benchmark service standard in their dealings with individual customers. The code is expected to help the credit card users in knowing their rights and also measures they should take to protect their interest. The code promotes competition and encourages market forces to achieve higher benefit customers.
RBI may be constituted a powerful committee consisting of different heads in leading financial institutions under the chairmanship of iconic person in this field. They will act independently to evaluate the pros and cons in banking functionaries with special emphasize to public dealing sections. The committee will finally recommend with specific guidelines to the appointed authority for empowering consumers benefits. The main objectives of formation of this committee are to improve consumer awareness and prepare a set of comprehensive consumers’ welfare codes which will ensure transparent, top quality services to the concerned users. In order to inculcate consciousness among the consumers, press (Third State, both electronic and printing Medias) must have been played a leading role throughout. Besides, both state(s) and central government must be advanced the pictures through enacting of suitable laws and enforcing them effectively. Moreover, consumer articles, magazines, journals, research proposals, official bulletins and circulations can also remove the black shadow over the prevalent banking conditions. However, the committee may be highlighted on the following issues for the purpose of boosting up the confidence of banking consumers in India:
- It would be better to see that if every branch will make a minimum provision for additional cooperation to illiterate and aged-old consumers.
- To encourage regional rural banks for collecting maximum consumers and for rural development. In order to execute it, constant approaches; appeals and publicity will be organized regularly.
- To take necessary steps for the people under BPL to introduce Saving Accounts with zero balance facility in the light of social upliftment.
- Normal banking working schedule may be extended is to be reviewed in order to meet growing financing needs.
- Monthly or quarterly basis statement will send to all consumers by banks. The statement also contains various schemes with interest rates and easy repayment schedules.
- Ensure zero customers harassment and actions will be taken on lodged complaints within shortest possible periods.
- For large amount transactions bankers may be used a separate room(s) for best safeguarding them from rest of others.
- Free purified drinking water must be supplied; adequate internal arrangement should be extended for removing the monotonous feelings for both employees and outsiders.
Thus the existing consumer protection codes about harassment free services are inadequate to protect them properly. Therefore, a unique safeguarding measure should be framed for all commercial banks. But more important is its effective implementation and continuously monitoring and to develop new and innovative management thoughts and techniques for establishing consumer friendly atmosphere in the banks. Public relations cell is still backward in PSBs. Hierarchical personnel of these banks are also neglecting this issue though it has worst public impression and bottom line results. Nationalization of PSBs had brought down the economic security of millions of depositors. Similarly, a nation-wide behavior codes for banking employees and top authorities must be formulated and to be channelized in a phased manner. In order to enhance consumer awareness, every banks must be affixed some general information in the open notice board stating their rights and duties so that everyone can visible it easily and exercise these timely in addition to key role of press and government legal initiatives. For better understanding notice is written in regional language(s) and in english. All statutory information may be displayed in electronically or in other cost effective mediums.
Interestingly most of bottom line banks have been losing market shares continuously and seize it by leading public sector banks and Indian and foreign private banks. Because of they are unable to meet the needs of various interested groups. Though profit figures increasing to Y-o-Y basis but rate of increment is not promising. Besides, voluntary retirement schemes (VRSs) make the situation more worsen. This methodology is used to reduce the government financial burdens and stimulating the privatization mechanism simultaneously and at the same time its negative impacts fall on consumer welfare. As a result existing employees are performing with huge workloads and sometimes they break up silence and temperament. Meanwhile, some branches have been posting few transactions throughout days that indicate low employee productivity and profit per employee that is below the national average. So, banks need to consolidate into two or three big ones for the purpose of increasing efficiency, competitiveness and quality cum touchy services to consumers. But one need to know to emulate consumer awareness level, consumer forums may be arranged the national conferences, constructive debates, workshop and also thinking about the formation of first tract consumer courts relating to settlement of disputes fiercely.
Author : MR. RAHUL NATH