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Why banks can safely ignore RBI?'s regulations designed to protect consumer rights

Why banks can safely ignore RBI?'s regulations designed to protect consumer rights

Harsh Roongta

24 Nov 2009

?In order to ensure transparency, banks should use only external or market-based rupee benchmark interest rates for pricing of their floating rate loan products. The methodology of computing the floating rates should be objective, transparent and mutually acceptable to counter parties. Banks should not offer floating rate loans linked to their own internal benchmarks or any other derived rate based on the underlying.?


No, this is not an extract from any of the Blog Posts at Apnapaisa, rather this is  contained in a circular of the RBI dated July 1,2006 and re-iterated faithfully in annual master circulars every year since including on July 1, 2009. This is supposed to be binding on all banks, yet to the best of our knowledge not a single bank in the country is following this diktat. In fact, it cannot be unknown to RBI that the biggest complaint on home loans is that banks have a very non-transparent method of calculating the floating rate of interest on home loans.


Here I would like to cite the example of my nephew (we incidentally share the exact same name) who wished to pay his monthly credit card bill vide a cheque. Being a careful person he asked his employee to deposit the cheque over the counter and get an acknowledgement for the deposit of the cheque. His employee was brusquely informed to drop the cheque in the given drop box and was told in no uncertain terms that an acknowledgement was not possible. Again my nephew who was rather well informed, dug out a copy of the RBI circular dated April 10, 2004 wherein the RBI has clearly directed that ? ?'the facility for acknowledgement of the cheques at the regular collection counters should be available to customers and no branch should refuse to give the acknowledgement if the customer tenders the cheques at the counters. We agree with this recommendation and advise that it is important that there is no curtailment of the rights of the depositor to obtain an acknowledgement by going to the concerned counter. You may please advise all your branches to ensure that the above instructions are scrupulously followed and customers are not inconvenienced in this regard. ? (emphasis added).


Like my nephew if anyone has ever tried to obtain an acknowledgement for a cheque payment of a credit card bill over the counter, he will attest to the fact that, forget following this direction, most branch employees are not even aware (or at least feign unawareness) of any such requirement.


Let?'s revert to the experience of my nephew.

When even a personal visit by him to the branch did not yield any results he filed a complaint with the Banking Ombudsman with a copy to the bank. Meanwhile the bank agreed to accept the cheque over the counter and provided an acknowledgement and even a written apology. My nephew sought compensation for the time spent and the mental harassment. The bank refused. Meanwhile the case came up before the banking ombudsman who dismissed it since the bank had already owned up its mistake. When requested to at least award some token compensation, the banking ombudsman refused. A complaint to the RBI also yielded no response. When my nephew followed up with them he was informed that he should be happy that the bank finally apologised and what more can he ask for ? Where is the question of pulling up the bank.


The upshot is that my nephew continues to face the same problem month after month. He is able to solve it by having his employee take a copy of the apology letter issued by the bank earlier and getting them to acknowledge the receipt of the cheque over the counter. But it is a constant battle. Clearly his faith in the ability of the regulator to enforce regulations on the banks is very low which cannot be good for the system.


RBI, in fact, has been among the most active regulators on the regulations affecting the consumer rights directly. In fact the single act of bringing in the banking ombudsman has bought in reasonable relief to consumers. So the situation is better than before. But the point is not about the state of the consumer redressal forums, it is about the manner in which consumer facing regulation is bought in without the will and/or the ability to enforce it. The reason perhaps lies in perception of the RBI  that anything that does not immediately or directly impact the stability of the financial or monetary system (assuring which is their main role and rightly so)  is perhaps, not that important and given the immense nature of the core task this can perhaps wait. One cannot really quarrel with such a proposition but it would then perhaps be better if the regulator does not come out with regulation that it cannot or will not enforce. It affects the credibility of the regulator when transgressions of a given regulation, even if not important from a systemic point of view, are left unpunished with not even a rap on the knuckles.


Banks are quick to argue that providing a facility to acknowledge cheques across the counter is an expensive affair. This is true but then their grouse should be with RBI which has come up with such a regulation rather than not following the regulation at all except when forced to follow by well-informed clients such as my nephew. I am sure if the regulation allows then at the payment of certain fees the acknowledgement can be given. This way the consumer can choose what option suits him and the bank would also not have to pay the price for this.

If only that same principle can be applied to transparent floating rate for home loans?'that will be the day.