The Dark Reality of the Banking Sector!

The Dark Reality of the Banking Sector!

By Prof. Bejon Kumar Misra, International Consumer Policy Expert, New Delhi [email protected]

It was a routine banking transaction that was going to kickoff my day. I logged into my online account to make a quick transfer to a client. Unfortunately, the screen flashed an error message and I was requested to try again. It was after a couple of repeated attempts that I got a text message that my account had been debited not once, not twice, but four times!

I contacted the bank at once and was told that it will take about 48 hours for the amount to be credited back to my account. I argued about the inordinate delay but the customer service desk was insistent that it takes time to refund the money from the creditor’s account. Till date the amount could not get reversed and ultimately I had to negotiate with the recipient to refund the excess amount paid to them, which is yet to happen.

Digital India is still in a nascent stage. We are finding our feet when it comes to internet banking and e-transactions. But is it fair to burden the innocent customer for no fault of his own? What if he faces an urgent need for the money before the 48 hours are up?

Things would be acceptable if this was a one-off phenomenon. However, customers are taxed by such errors on all fronts from credit card transactions and bill payments to money transfers and more.

Internet banking is poised to become the mainstay across the country. Seamless e-banking access calls for a better synergy between the banking system and the internet providers. With more and more people literally carrying their banks in their mobile phones, there is a growing demand for prompt resolutions within a couple of hours or by the end of the day at the maximum.

This is only one of the copious grouses that the common man experiences against the banking sector in our country. While consumer complaints are the order of the day in any service sector, does our banking system manage to meet the basic parameters of consumer-friendliness?

Looking back, banks were charged with revolutionizing economic development in the post-Independence era. They bridged the gap between those who have money and those who need money in the form of deposits and investments on the one hand and loans and advances on the other. The public was initially happy to earn some interest and dividends on their savings while enjoying the notion of complete security of their hard-earned money.

We have witnessed a cycle of nationalization of the banks in 1969 and subsequently in 1980 to gain better control of the finance sector and influence healthy banking activities. The Banking Regulation Act established the Reserve Bank of India as the regulatory watchdog with ubiquitous jurisdiction over both public and private sector banks to implement proper accounting to assure ethical practices and uphold consumer interests. This was followed by a wave of privatization and consolidation riding on the coattails of bureaucratic red tape, political interference, executive mismanagement and operating inefficiencies.

The initial safe and secure image of the banking sector has been slowly unraveling over the years. In the last ten to fifteen years, we are slowly realizing that the banking laws were never in favor of the people who actually give the money, expecting fair business practices and suitable return on the deposits as consumers.

Think about it - the financial institutions have been riddled by controversial frauds in the past decades. The securities’ scams, the housing loans’ scams, the Ponzi schemes and the fake bank guarantee receipts scams are just some of the prime cases that defrauded the banks of crores of rupees. 

Corporate, financial and political heads collude together and it is the common man who gets fleeced in the end. Think of it – the banks may be crippled by the Non Performing Assets and face a preemptory shut down, but it is the poor depositors and investors who end up paying the price for the same. He wakes up one fine day to the devastating news that his local bank has closed down. He has no clue about when, or if, any of his savings will be recovered!

Last year’s Punjab & Maharashtra Cooperative Bank Limited (PMC) scam can be termed as the last nail in the coffin after the unforeseen collapse of Yes Bank and Punjab National Bank (PNB). The public was brusquely awakened from their slumber when they realized that their deposits are insured only up to a limit of Rs. 1 lakh. This has badly shaken the confidence of the people who were lulled into a false complacency till date.

Another growing rouse is that an ordinary customer is marked as a defaulter for his inability to repay a small loan or even a credit card bill and has to bear the cross on his creditworthiness for life. Meanwhile, crooks like the Nirav Modi, Mehul Choksi, and Vijay Mallya vanish into thin air with oodles of money and live the high life; the banks responsible for the mis-selling get away by simply writing off the ‘loans’ and ‘guarantees’ as NPAs.

Finally, the RBI has no choice but to step in and infuse capital into the ‘suffering’ banks with financial packages to pay back the liabilities to the depositors. But whose money is funding the rescue mission? The taxpayer’s savings are decimated on the one hand and he is still the one actually bankrolling the bailout! So isn’t the government simply putting money in one of our pockets by stealing from the other?

And where can the public turn to protest against the free run enjoyed by the banks that is misused in the form of fake fixed deposit receipts, fake security and fake collateral that creates the illusion of money that actually existed only on paper?

The Reserve Bank of India seems to be wearing the cloak of a benevolent benefactor by merrily looking the other way instead of exercising due diligence. In the aftermath of the PMC closure, as Consumer Rights activists, we had immediately filed a PIL in the Delhi High Court to increase the insurance coverage for depositors. It was after a plethora of arguments and excuses, that the government mandated an increase to Rs. 5 lakhs. But this was too little too late seeing that the law had been revised after a massive gap of 23 long years!

The redressal mechanism offered by the banking ombudsman is no better. The annual report of the banking ombudsman for 2017-18 (1 July 2017 to 30 June 2018) reveals that nearly half of the 1,64,000 complaints it received were rejected as ‘non-maintainable’. While 0.4% of the total complaints were regarding as mis-selling, a paltry 133 complaints got awarded in favor of the consumers. The summary rejections continue to play out while the banks blithely get away with unexplained hidden charges, extraordinary delays, mis-selling of financial products and more.

The so-called Customer Service department in the banks is also riddled by a ubiquitously lackadaisical and inefficient attitude. It takes long and repetitive attempts to get connected, and once contact is established, the hapless customer is carelessly shuffled around and has to keep repeating his ‘story’ to myriad people. Much like the legendary file in a government office! No wonder the harried customers prefer to bypass the customer service and ombudsman options in favor of the lengthier but more effective consumer forums.

The service deficiencies are glaring and the banks cannot rely on their collective clout to sail them through the churning waters any more.

The current Modi government has been slowly mobilizing public funds and the Jan Dhan Yojna was truly groundbreaking. The small savings of the people that were idling in their homes rallied into huge amounts in the hands of the banks and infused some much-needed liquidity in the banking sector. However, it is a fact that people are still loathe to invest more than Rs. 5 lakhs in banking products, preferring shares, securities, assets or even hard cash. The low rate of returns on bank investments also works against mobilizing public money. As the lending rates continue to plummet, the consumers are steadily deprived of adequate earnings on their savings.

The banking environment in India is long overdue for a mammoth overhaul. The parameters of courtesy, competence, security, reliability, credibility and responsiveness are what will define acceptable service and satisfaction for the consumers. It will translate into effectiveness and efficiency that will ultimately inspire trust, loyalty and retention.

A dynamic consumer-friendly policy has to be carefully drafted and executed right from the highest echelons. Furthermore, it is the foremost responsibility of the financial services sector to work in the interests of the consumers and protect them with adequate laws and regulations. If the government truly wants the banking sector to bloom once again, it has to inspire a measure of trust among the public so that they feel safe to park their funds in their local banks.

The onus is on the RBI to institute diligence and accountability among the banks while regularizing their lending operations. The banks should be charged with better finance management, eliminating inefficiencies and exhaustive checks of lenders as well as held accountable for frauds and non-payment of loans and advances. Simultaneously, they should be empowered to implement stringent recovery methods and even go ahead with liquidating the assets of defaulters to pay back their liabilities!

The hidden encumbrances in the banking system have to be ferried out by leveraging immediate redressal mechanisms and processes that are clean and above board. Moreover, the regulations should be reviewed year on year in consultation with the end consumers with a strong focus on meeting their demands and ensuring their welfare.

Going ahead, there is a strong need to link banking with social security products like pensions, unemployment benefits, healthcare, child education and other basic needs. These kind of world-class products and services define the developed economies like USA, Germany, France and Great Britain. The insurance of social security helped the citizens of these countries to tide out the unprecedented Covid-19 pandemic times without worrying about pay cuts or job losses. The insurance was no doubt, ultimately funded from their own money, but the strong notion of security stays unparalleled. In contrast, our public servants are protected by attractive pension schemes, but the poor laborers and other unskilled workers are left to wallow in a rickety existential crisis.

I leave you with some thought-provoking questions - Can the banking sector afford the image of a towering bully and end up driving away the consumers that actually fund their operations? Will our economy grow when the public savings are nose-diving despite the significant increase in per capita incomes? Why can’t the government work out constructive ways of using the taxpayers’ money to institute safety and protection for the public?