Source: Mint
Context:
The Reserve Bank of India’s (RBI) 2024-25 Integrated Ombudsman Scheme (IOS) report highlights a steep rise in customer grievances—driven largely by private banks’ aggressive retail expansion. The data signals systemic weaknesses in grievance redressal, customer onboarding, and credit discipline within the rapidly growing retail loan ecosystem.
Key Highlights:
Surge in Complaints
- Total complaints (2024-25): 13.34 lakh, up 13.5% from the previous year.
- 87% of all complaints came from individual retail customers.
Private Banks Now Lead in Complaints
- Private sector banks accounted for 37.5% of all grievances—the highest among bank groups.
- Complaints against Public Sector Banks (PSBs) fell by 9%, countering the common perception that PSBs are the worst on customer service.
- The shift is linked to private banks’ intense push into:
- Unsecured personal loans,
- Small-ticket loans,
- Aggressive credit card enrolments.
Why Are Complaints Rising?
- Rapid retail growth since corporate lending slowed.
- Faulty or hasty loan appraisals leading to disputes over dues.
- Aggressive collection practices, especially in unsecured lending.
- Poor onboarding, resulting in confusion over interest, charges, and repayment schedules.
- Weak grievance redressal mechanisms despite higher retail exposure.
What Is the Ombudsman Scheme of RBI?
The Ombudsman Scheme is a complaint redressal mechanism created by the Reserve Bank of India (RBI) to resolve customer grievances related to banking, NBFCs, and digital payments. It provides cost-free, fair, and speedy resolution of complaints against regulated financial service providers.
Purpose of the Scheme
- To offer an accessible platform for customers to lodge complaints.
- To ensure transparent, timely, and impartial resolution of disputes.
- To enhance consumer protection in the banking and financial ecosystem
Regulatory Gaps Revealed
Inefficiencies in Redressal
- Many complaints remain unaddressed or inadequately resolved, revealing cracks in banks’ customer-service architecture.
- RBI Governor Sanjay Malhotra previously flagged the poor allocation of resources for customer grievance management.
Credit Bureaus: A New Flashpoint
- Complaints against credit bureaus increased four-fold.
- Structural issue:
- Credit bureaus rely financially on banks,
- They often accept bank-reported data without verification,
- Consumers receive secondary priority, even when ratings are disputed.
Larger Implications for Banking
Retail Customers Still Seen as “Depositors First”
- Despite relying on retail customers to drive profits, many banks continue treating them merely as deposit sources, not as service-entitled clients.
- As depositors increasingly explore mutual funds, gold, bonds, and market-linked products, banks risk facing weaker deposit inflows and pressure on their net interest margins (NIMs).
Financial Stability Angle
- Rising unsecured loan exposure + weak consumer protection = systemic risk.
- RBI’s concerns signal potential tightening in:
- Digital lending rules,
- Credit card governance,
- Customer-protection norms.
Way Forward
- RBI must strengthen the regulatory framework, especially around:
- Retail onboarding quality,
- Collection practices,
- Accuracy of credit bureau reporting,
- Banks’ spending on grievance-handling systems.
- Banks need to invest in service architectures that match their retail ambitions.
- If ignored, customer dissatisfaction could erode trust and revenue, undermining the very retail strategy banks are betting on.
