Outgoing RBI Deputy Governor Warns Banks About Excessive Charges

From the banking sector’s bad loan crisis to demonetisation and the mushrooming of fintech firms, S.S. Mundra, deputy governor at the Reserve Bank of India (RBI) has seen a lot over the course of his three year tenure. But Mundra, now getting ready to step down from his position at the end of month, still has one big item on his agenda - trying to stop misselling at banks and preventing them from imposing excessive and opaque charges on customers.

He won’t come anywhere close to achieving that in what’s left of his tenure but he leaves banks with a stern message.

In an interview with BloombergQuint on Tuesday, Mundra said that the regulator’s supervisory audit of banks this year would be consumer focussed and will be assessing banks on the basis of their ability to treat their customers fairly and in a transparent manner.

The regulator will also be asking its recently formed enforcement department to keep a close tab on these issues, Mundra said. The enforcement department of the RBI was formed in April.

Mundra’s comments come at a time when consumer anger against the perceived unfair dealings of banks has been on the rise. One manifestation of that has been the increase in customer complaints received by the Banking Ombudsman Office set up under the aegis of the RBI. In its annual report for 2015-16, the Ombudsman office revealed that customer complaints against banks have increased from 4994 in 1999-2000 to over 1 lakh in 2015-16. This was the first time that more than one lakh complaints were received, said the Ombudsman’s report.

Mundra, while saying that the RBI has no intention to dictate interest rates or charges, wants banks to be more transparent in their dealings.

“... whatever you are charging should be transparent and the customer should be well informed. Nothing should come as a surprise, nothing should come as a hidden charge. That is very much on the agenda,” Mundra said.

The RBI has been attempting to strengthen the consumer protection framework in the country for the last few years. This started with a ‘Charter of Customer Rights’ which the central bank released in December 2014. The charter focussed on issues such as right to fair treatment, right to transparency and fair and honest dealings.

The RBI followed this up by asking each individual bank to set up a banking ombudsman office to resolve customer complaints. On June 23, the RBI issued a notification expanding the Ombudsman scheme to include complaints arising out of the sale of insurance, mutual fund and other third party investment products by banks.

Finally, earlier this month, the regulator released guidelines intended to protect victims of digital banking fraud by limiting the customer’s liability if the fraud takes place due to the negligence of the bank.

While the banking regulator is strengthening its vigilance around customer related issues, Mundra hoped that increased competition, particularly from fintech firms, will also push banks to improve service standards.

One potential change in regulation which could shake up banks is account number portability. While the RBI has given no indication that it will move in that direction anytime soon, Mundra continues to advocate the case for account portability as a way to improve banking services.

“It will need some harmonisation between various banks and the account number pattern, maybe the structure of the products. But all of this is doable. And if this happens, it will be setting an example for the globe,” Mundra said reiterating a pitch that he had made through a number of his speeches.

Mundra feels that India is in a unique position since it has a payment backbone in place through the National Payment Corporation of India (NPCI). That, together with Aadhaar, which will soon be mandatory for bank accounts, could form the core of account number portability.

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