Sweeping reforms mooted; feedback open till Aug 27.
There is some good news for bank customers. It may soon be time to bid goodbye to bad memories of being penalised for non-maintenance of the minimum balance, being charged for shifting home loans, or having struggled to recover money after failed ATM transactions.
A high-profile committee on customer services by banks has suggested sweeping changes in banking practices. The report of the committee headed by former Securities and Exchange Board of India (Sebi) chairman M Damodaran has been submitted to the Reserve Bank of India (RBI). It has also been posted on the central bank’s website to seek public feedback by August 27.
The committee has suggested a toll-free common call centre number for all banks, which a customer could call and then be diverted to the bank concerned.
| PROPOSED CHANGES |
| PLAIN vanilla savings accounts without a minimum balance requirement |
| FLOATING rate housing loans with no distinction between old and new customers |
| SWITCH option for home loans at least once during loan tenure |
| COMMON toll-free call number |
| COMPENSATION for delayed return/loss of title deeds in banks’ custody |
| ZERO liability on loss in ATM and online transactions |
| ENHANCEMENT of deposit insurance cover to '5 lakh |
| CHIEF customer service officer for grievance redressal in every bank |
On the deposits side, the panel, which emphasised that bank customers be treated fairly, said all banks should offer plain vanilla savings accounts with certain privileges like cheque facility, ATM card, etc without prescribing a minimum balance.
The committee observed that banks offered bundled products not priced in a way that served the customer’s best interests. “It’s like selling a single flower, or a bunch of flowers or maybe a bouquet at the same price, irrespective of the customer’s needs,” the report said, while commenting that most often customers never used all the products.
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If the balance in the account fell short of the minimum requirement, the penal charges levied should be in proportion to the shortfall, the report said, adding banks must immediately inform the customer. In addition, all fixed deposit schemes offering different rates for different tenures should indicate the annualised yields so that the customer could take an informed decision.
It has also been suggested that banks not auto-renew deposit accounts without written customer consent. Insurance cover for deposits has been suggested to be raised to Rs 500,000 from Rs 100,000 now.
The report came down heavily on banks which charge customers for making transactions in non-home branches. Saying such charges are not justified, the committee said, “Routine services like passbook updates, which are of an informative nature, should be made available to customers free of charge.”
The report has also given huge relief to home loan borrowers who continue to pay higher rates while new customers pay lower rates.
This practice was rampant in the last couple of years when banks such as the State Bank of India (SBI) offered lower rates to new customers while existing customers continued to pay higher.
“In a floating interest rate scenario, when an entire class of borrowers has the same characteristics and risk level, the point of entry in time (old customers and new customers) should not create discrimination in the interest rate offered. In such cases, the spread over the base rate should not vary when individual risk rating for loans is absent, as is usually the case in retail loans,” it said.
Banks have been asked not to impose exorbitant penal rates for foreclosure of home loans and ensure that customers are not denied the benefit of lower rates offered by other financial institutions. The committee said measures to stop practices discriminating between new and old customers with identical risk profiles on the basis of interest rate offers must also be initiated.
It suggested all home loans permit a switch between fixed and floating rates at least once during the loan tenure, at a reasonable fee. Banks have been asked to return the title deed agreement to customers within 15 days of the loan closure, failing which the customer be compensated.