RBI devises customer service norms for MSMEs; hints at firm customer protection norms

Mumbai, May 23 (KNN)  BCSBI, the board under the RBI for laying down clear norms for customer services in the banks, has developed a separate set of standards for service, known as codes, for the MSME sector. 

“We have to ensure adequate customer protection for these new users of banking services. We have to help them through financial education, literacy and awareness to use the diverse range of products and services offered by the banks. Awareness of the customer has to be increased. With greater awareness of customers, must come, heightened responsibility of the provider of financial services,” RBI Executive Director Deepali Pant Joshi said earlier this week while addressing the annual conference of the Banking Codes and Standards Board of India (BCSBI) here.

Through customer protection initiatives banks must ensure adequate protection of rights of their individual, vulnerable, small customers, she added.

“From the principle of ‘caveat emptor’, Latin for ‘buyer beware’, we have to move to the principle ‘caveat venditor’, Latin for ‘seller beware.’ We are going to have the principal of caveat venditor and are going to formulate the codes for it,” she pointed.

The current system of regulations that governed sale of financial products and services was based on caveat emptor as a doctrine, added Joshi.

The recent Nachiket Mor panel report on ‘Comprehensive financial services for small businesses and low-income households’ had said that the caveat emptor principle had led to fundamental flaws in the customer protection architecture and had created large welfare losses for customers.

She further said that the caveat venditor principle was a counter to caveat emptor and suggests that sellers (banks) could also be deceived in a market transaction.
“This forces the seller to take responsibility for the product and discourages the seller from selling the products of inferior quality,” Joshi said.

Caveat venditor vested the burden of effort of proving that the shortcoming deficiency of service was absent on the seller of the product, she added.

The Mor report had also suggested that there was a need to move to a customer protection regime where the provider is held accountable for the service sold to the buyer, by ascertaining that the products sold or the advice given was suitable for the buyer considering her needs and current financial situation, that is to the customer must have a ‘right to suitability’
 
RBI’s Executive Director said once the codes are set, it would be mandatory for all banks to adhere to them.

The framework governing customer protection should consist of fairness; transparency of rules and conditions; suitability of products that matches customer needs, ability to repay; existence of a grievance redress process; clear specifications of liability if things go wrong; simplicity of the product and duty to inform about the changes in the product.

 “We need to enshrine these principles in the customer’s charter of rights and duties of banks towards their customers. So, caveat venditor will necessitate these,” she said.
Joshi said public sector banks had to improve customer services across all spheres and particularly in areas related to deposits accounts, loans, pensions and failure of commitments made under the BCSBI codes.

In addition, services related to credit and debit cards, which have been subject to frequent complaints, need to be improved across all banks group.

According to the category-wise data on complaints sourced from banking ombudsmen in 2012-13, majority were regarding ATM cards (25 per cent), followed by non-observance of the fair practices code (16 per cent), she said.

Complaints received regarding loans and advances were 9 per cent, failure of commitment made under the BCSBI was 9 per cent and deposit accounts was 6 per cent.

“I find that there are several violations of the BCSBI codes. This is not a situation of comfort for the RBI and difficult to comprehend as the banks have voluntarily accepted the codes formulated by BCSBI,” she noted.

BCSBI is mandated to evolve Codes and Standards for banks to follow while dealing with their customers so as to ensure that the customers are enabled certain minimum standards of customer service. BCSBI has developed two sets of Codes for member banks - Code of Bank’s Commitment to Customers and Code of Bank’s Commitment to Micro and Small Enterprises.

These Codes are periodically reviewed and revised in order to reflect the extant regulatory guidelines, contemporary developments in the banking sector and evolving customer expectations. BCSBI monitors and assesses the compliance with its codes and standards.