Context:
RBI Governor Sanjay Malhotra sharply criticized Indian banks for their poor customer service and complaint management. Banks in India held ₹103 lakh crore ($1.2 trillion) in fixed deposits in 2023, but small customers continue to face negligence.
- Complaints under RBI’s ombudsman scheme have been growing at a 50% CAGR over the past two years, highlighting a systemic issue.
- Malhotra termed this a “highly unsatisfactory situation” needing urgent corrective action.
Rampant Underreporting and Regulatory Violations
- Banks received over 1 crore complaints in FY24.
- Many complaints were misclassified as queries or requests, violating regulatory norms.
- The practice of window dressing complaint data was flagged by the RBI.
Complexity of Banking Complaints Grows
- Traditional complaints (like forgery or wrong entries) have now evolved into:
- Mistaken credit score downgrades, impacting customer loan eligibility.
- Misselling of financial products (investment schemes, insurance) by bank staff incentivized for sales rather than service.
- Poor due diligence in gold loans, unsecured loans, and top-up loans, leading to increased consumer risk.
Homebuyer-Banker Nexus Under Scrutiny
- The Supreme Court has called for a CBI probe into the alleged collusion between banks and builders.
- Banks disbursed up to 60% of housing loans despite knowing that construction had not even begun, indicating possible misconduct.
- This has resulted in lakhs of homebuyers paying EMIs without receiving their homes.
RBI’s Stern Warning to Banks
- Malhotra warned that if these issues remain unresolved, they will erode consumer confidence and tarnish the entire financial ecosystem.
- Banks are urged to shift focus from aggressive sales to transparent, customer-first banking practices.
Time for Banks to Clean Up
- With India’s banking sector holding massive deposits, the small customer cannot be ignored.
- Banks must address systemic flaws in complaint redressal, improve transparency, and adhere to regulatory standards.
- Failure to act will undermine trust and damage the credibility of the entire financial system.
