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Customer service: Precept & practice - Outside View by S.S. TARAPORE
Customer service: Precept & practice

Customer service in the financial sector has been a matter of concern for the past fifty years. It is unfortunate that the quality of service in the financial sector falls short of the quality of service in other services such as the railways, airlines and telecom. In this sector, there is a great divide between what is considered as the minimum acceptable standard and the actual quality of service provided to individuals.

Bane of customer service

To quote the veteran commercial banker, M G Bhide, former managing director, SBI, and former chairman, Bank of India, the quality of service in the financial sector is critically dependent on who you are and who you know is. When Dr Y V Reddy took charge as Governor in September 2003, he made customer service for the common person his topmost priority and it was his avowed objective to put in place an institutional mechanism that would bring about a significant improvement in customer service.

Banking Ombudsman Scheme

In the banking sector, there is a mechanism for redress of grievance in each bank and also a Banking Ombudsman (BO) Scheme in each state. The 15 BOs together receive, on average, about 70,000 complaints per year largely in the metros.

An important initiative during Governor Reddy's tenure was the setting up of a Banking Codes and Standards Board of India (BCSBI), which is an independent autonomous body which sets minimum standards for banking services in India. The BCSBI was initially set up by the RBI in collaboration with banks. The financing arrangement was that initially, the RBI met all expenses of the BCSBI and simultaneously, the banks made an annual contribution towards a corpus for the BCSBI. The income on the BCSBI corpus is applied towards meeting the expenses of the BCSBI and the RBI picks up the balance expenditure; progressively, the share of the expenditure borne by the RBI has been coming down. Initially, the RBI appointed Ms K J Udeshi, former Deputy Governor as chairman, BCSBI, and on completion of her term, the chairman is now a former commercial banker. Progressively, the banks will take on full responsibility for financing and operating the BCSBI. The BCSBI has set minimum standards in a Code of Banks' Commitment to Customers and the BCSBI also undertakes an elaborate assessment as to whether banks are implementing the Code.

Asymmetry in treatment

What is set out below are random illustrations of how institutions crush individuals - these problems cut across banks, non-banks, insurance, mutual funds and the equity markets. An individual is subject to punitive action when he is at fault, but when the institution is at fault, the error is corrected and in some cases the individual is compensated. The significant point is that the institution does not face any punitive penalty.

Random iIllustrations of inadequate service

A few random cases are set out below which reflect rampant violation of customer rights; these may, admittedly, be stray cases, but the very fact that these aberrations exist speaks volumes for the poor quality of customer service.

  1. Dishonoured Cheques: When a cheque is dishonoured because of inadequate balance, the customer is subject to a penalty. But when a cheque is dishonoured because the fault is that of the bank, all that is done is that the error is rectified, but the bank does not face any penalty.

  2. Drop Box Facility: Although a drop box facility is available to customers, many public sector banks invariably deny customers the right to get an acknowledgement from the bank teller. By forcing the customer to 'self-stamp' the counterfoil with the bank's seal without the bank teller's initial leaves the customer vulnerable if the cheque is not traceable. The regulator has time and again warned that the customer has the right to obtain an acknowledgement, but this is observed in the breach.

  3. Double Charging for a Service: When a bank erroneously imposes a 'double charge', it invariably does not return the excess amount; the dictum being the smaller the amount the lower the chances of recovery for the customer.

  4. Mutual Funds: When an investor sells a holding in a mutual fund, the seller does receive a direct credit into the individual's account, but neither the bank nor the mutual fund is willing to give the individual an acknowledgement, which the individual may need for income tax purposes.

  5. Insurance Policies: When, in a quarterly premium insurance plan, say for three years, the individual misses the due date for a single installment, the entire corpus is forfeited. This may be a case where the agent plays truant, but there appear to be no safeguards against such excesses.

  6. Equity Demat Accounts: There are known cases where agents collect money from gullible investors, with no documentation to the investor, and the agent trades in his own name. Investors are enticed by very high rates of return in the initial years, but this is invariably followed by large losses; since there are no documents, the individual is at the mercy of the agent. Moreover, there are known instances of officials of reputed banks entering into the homes of individuals and aggressively indicating that they have been appointed as the portfolio manager of the individual. On being asked as to who has appointed them, they indicate that they are 'self-appointed'!
Need for punitive penalties

In all cases where such incidents come to light, agents and institutions should face punitive penalties. Customers should be able to approach the authorities without fear and the processes for such appeals should be simple. In other words, there should be zero tolerance for violation of basic customer rights. Institutions would no doubt claim that these aberrations distort the overall picture, but the fact that there is even one violation should be a cause of distress for regulators.

Declaration: These instances have been experienced by the present writer in the course of incognito visits to institutions.

Please Note: This article was first published in The Freepress Journal on September 22, 2014. Syndicated.

This column, Common Voice is authored by Savak Sohrab Tarapore. Mr. Tarapore, is an economist and he runs his own Multi-Language Syndicated Column. Mr. Tarapore's other column, which appears in The Hindu Business Line, is titled Maverick View.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.


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3 Responses to "Customer service: Precept & practice"

R Parikh

Oct 7, 2014

Mr Satish Dabholkar,

The major difference for your information is that irrespective of the service quality no Railway, Telecom or Airline will quietly & without your express consent debit your account resulting in monetary loss to you which the Financial Services sector like Banks do!! Got it??


R Parikh

Oct 7, 2014

The examples given are only tip of the iceberg. We're sure that if encouraged your readers can give many many more examples, from all categories of Banks, some of our experience: 1) when banks wrongly credit you & find out later they recover the amount applying value dating concept but if you fight for reversal of wrong charges & force bank to agree they just refuse value dating & you loose interest.
2) Complaints made are invariably close without checking with you
3) Most banks especially Private just do not give acknowledgements for what you submit them including important correspondences etc !!
3) Banks offer some freebies e.g. debit card for first year on opening the account, free sms service etc & later on invariably extend the said services even beyond the initial period for which they keep on charging merely be debiting your account merrily - you would be surprised how many crores of Rupees banks have earned in the past few months by levying sms charges every quarter or month - these were introduced free but subsequently merely by some message made chargeable unless you take the initiative & go to them & cancel the said service!! all under guise of RBI allowing them to charge now - why has RBI not asked the Banks to do the reverse e.g. discontinue all such services unless the customer wants it??

Finally RBI instructions are interpreted as the Banks deem fit & customers have no direct recourse or complaint line to RBI


Satish Dabholkar

Sep 23, 2014

The author state that the quality of service in financial sector fall short of the quality of service in Railway,Telecom,Airline which no one will agree and will laugh at this comment.
Every one will agree that in financial sector there is someone who looks after the customer service.No such thing is found in other service sectors.

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