Reserve Bank of India (RBI) Governor Sanjay Malhotra does not seem to believe in slow starts. Soon after assuming office, he has shot multiple arrows from his regulatory bow. This has met with the customary scepticism, but a central bank governor’s words have weight and can work through multiple regulatory channels.
It is, therefore, remarkable that he has chosen to address the issue of power hierarchies and asymmetries in the financial system, especially the disadvantageous position of individuals in the banking system. A little over three months into his tenure, he has decided to address the banking system’s aversion to addressing customer grievances. Quoting official data, he said that the number of complaints received under RBI’s Integrated Ombudsman Scheme increased at a compounded average rate of almost 50% per year over the past two years to reach 934,000 in 2023-24.
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Malhotra also decried the banking system’s deliberate attempts to sweep grievances under the carpet: “I would also like to draw your attention to the misclassification of complaints as requests, queries and disputes by the regulated entities. This results in the complainants’ grievances remaining unaddressed. Moreover, this is also a gross regulatory violation.” This indicates that banks either lack the capacity to address the rising tide of complaints or deliberately ignore customer grievances, allowing complaints to get bumped around.
This also demonstrates how the organizational structure of most banks is fundamentally misaligned with the retail business. As an individual, suppose you get a wrong message about your credit card dues or a missed payment. If you try to get the bank to admit its mistake, you are in for a rough ride. It will first throw its entire bureaucracy at you. If you persist, it will reward your doggedness by lining up its legal machinery. For a resource-constrained individual, this becomes a soul-sapping event.
Even if one were to disregard the lack of moral and ethical values in these actions, imagine the administrative time and cost that banks are willing to incur to avoid saying sorry.
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Data from RBI’s 2023-24 annual report of the Ombudsman Scheme makes for interesting reading. Over 80% of the complaints received originated from individuals, signifying the banking industry’s systemic inability to deal with retail customers.
The complaints were largely against public sector banks (38.32%) and private banks (34.39%). Interestingly, while complaints against public sector banks increased by only 10.27% between March 2023 and March 2024, those against private banks grew 37%. This is significant given the larger footprint enjoyed by public sector banks in terms of both branches and market share of assets.
Non-banking financial companies (NBFCs) were third (14.53%), ahead of other institutional categories. The top three categories alone accounted for over 87% of all complaints, reflecting the aggressive drive during 2023-24 to grow their loan books. The annual report also shows that the highest number of complaints (29%) pertained to loans and advances.
There are other instances where bank processes and rates are antagonistic towards individuals.
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In the event of a missed interest payment, the bank is expected to communicate the event to credit bureaus, which as a matter of routine take the bank’s word on face value and downgrade the individual’s credit rating.
Now, many banks have started sending out automated missed-payment notices to customers. Like all programmed bots, many of these have bugs and communicate missed-payment notices to customers even when there are no defaults.
However, credit bureaus do not reach out to affected customers to check the veracity of the information. It is odd that credit bureaus exhibit such remarkable alacrity in downgrading individual credit ratings, especially in a financial system where most institutions are known to make mistakes, have yawning gaps in their systems that allow information slippages and have failed to achieve the ideal human-machine configuration.
A reason could be their dependence on institutions, and not individuals, for fees and incomes.
There is a dispute-resolution route available in case of mistakes in the credit score or credit report. However, very few borrowers know about this. In any case, dispute resolution by the bureaus takes anywhere between 30 and 45 days. No wonder that the ombudsman annual report shows a rising number of complaints against these organizations.
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The presence of other anomalies also indicates the banking industry’s struggle with retail-facing operations. For example, in the previous two years, banks indulged in an unsecured retail lending binge to make up for otherwise lacklustre credit growth. The rates charged on these loans ranged between 10% and 15%. But their rates on credit card dues, which is another unsecured form of retail borrowing, are usurious and range anywhere between 30% and 36%.
Even RBI’s regulatory framework may need a retail check. Incidentally, RBI’s introduction of organisations (SROs) for many emerging sectors (such as fintech) marks a fundamental shift in its regulatory approach. But the movement seems to have bypassed the banking system. The Indian Banks’ Association has been around for about 80 years and is also considered an SRO. But, unfortunately, its functioning has no resemblance to that of an SRO. Change can start here.
The author is a senior journalist and author of ‘Slip, Stitch and Stumble: The Untold Story of India’s Financial Sector Reforms’ @rajrishisinghal
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