Future of banking experience in India

Priority banking for senior citizens, option to shift from floating to fixed rate loan and vice versa, easy availability of lockers are few of the changes recommended

It has now been more than 4 years since I have shifted my residence from Dombivli to Mulund.  But I am still continuing my savings account at the Dombivli branch of HDFC bank.  Savings account number has been registered at various places such as mutual fund companies, online broking and god knows where else.  If I shift the branch, the savings account number changes and I need to re-register the new number at all such places.  To avoid this hassle, I opted for an easy choice of retaining my account at Dombivli branch.

This is a hassle for the account holders moving from one city to another.  However, it can be removed if RBI accepts the recommendations of allowing customers to retain the account number in case of branch change.  The recommendation has been made in the report on ‘Customer Service in Banks’ issued by committee headed by Mr. Damodaran. The report contains many such customer friendly recommendations and even if few of them are accepted, can vastly change the banking experience.  Bachhat has listed down few of the key recommendations from the report in this post.

Key recommendations:

1.     Customers should have option to opt for plain vanilla products rather than purchasing bundle products.  This will enable customers to pay only for products they use.  For eg:  If a customer does not want a debit card along with a savings bank account, he should be allowed to open a normal savings account without a debit card.  This will allow him to save annual fees on the debit card.

2.     If customers opt for, banks should send digitally signed e-mail account statements and such statements should be accepted as valid proof by various Government authorities.

3.     Generally we have savings accounts in various banks and few of them may not be in use.  In case there are no transactions in a account for certain period, the bank marks that account as inoperative.  It then becomes troublesome for the account holder to operate such inoperative account.  The committee recommends that before making such accounts as inoperative, the bank must intimate the account holder by SMS.  Bank should take all reasonable efforts to trace the account holder before marking any account as inoperative.

4.     Similarly banks should inform the customers immediately if the balance in the account breaches the minimum balance.  Further the penalty for not maintaining minimum balance should be in proportion to the shortfall observed.  For eg: If the minimum balance required to be maintained is Rs. 10,000, the penalty for balance at Rs. 9,000 should be lesser than penalty for balance at Rs. 5,000 in the savings account.

5.     Bank should offer a basic bank account with certain privileges like free number of transactions per month, cheque facility, ATM card, etc without any requirement of minimum balance.  This will benefit lower income group customers.

6.     The account opening forms should be standardised across banks.  Any additional information required by individual bank should be obtained separately.

7.     The customer should be allowed to maintain the same account number in a bank even when he / she moves to another city or another branch in the same city.

8.     For term deposits, notices for renewal should be sent to customers, preferably in electronic form.  Further, unless otherwise instructed by the customer, term deposits should not be auto renewed.

9.     Banks charge the customers for any transactions carried out in their non-home branch.  The committee feels that such charges are not justified and should be removed.  Further, certain routine services like pass book updation should be made available to the customers free of charge at any branch.

10.  The Payee, the person who deposits / encash the cheque, should not be penalized for cheque bouncing due to insufficient funds in drawer’s account or other reasons.  The penalty in such cases has to be levied on the drawer and not the payee.  Similarly, customers should be adequately compensated for errors made by banks in cheque clearing.

11.  Nowadays, we generally deposit the cheque in the ATM drop box.  However, we do not get any acknowledgement to substantiate the deposit made and have to depend on the information provided by the bank in case of any delay in clearing.  The report suggests that the cheque drop box should provide receipt / acknowledgement along with the image of the cheque.  This acknowledgement can serve as proof of deposit in case of any subsequent dispute.

12.  We have seen banks offering home loans at teaser rate to new customers.  Thus the interest rates for new customers are reduced, while existing customers are charged higher rates.  When the interest rates rise, the bank increases the interest rates on home loans immediately.  However, when they fall, the benefit is not passed on fully.  The committee is against such discrimination of borrowers who has the same characteristics and risk levels.  It suggests that the point of entry in time should not create discrimination in interest rate offered to the customers.  Thus both the new and old customers should be offer the same interest rate.

13.  Committee also suggests that the foreclosure charges on home loan should not be exorbitant.  The customers should be able to switch loans to other bank without heavy penalties.

14.  Bank should automatically provide annual account statement to home loan customers without request from them.

15.  Home loan customers should be permitted to switch between fixed to floating or vice-versa at least once during the loan tenure at a reasonable fee.

16.  Banks requires home loan customers to purchase an insurance of amount equivalent to outstanding loan to safeguard their interest.  The report states that in case of demise of the customer, such loans should be automatically settled by the insurance amount with minimum inconvenience to customer’s nominees / heirs.

17.  Senior citizens, physically handicapped persons should be provided prioritized services.  Further based on the date of birth in the bank records, the customer should be automatically updated to senior citizen category.

18.  Banks should also make arrangement to disburse pension to sick and disabled pensioners at their door steps.

19.  In the branch, banks should provide dedicated phones / internet kiosk so that customers can avail themselves of the facilities of call centre, internet banking and phone banking.

20.  Further there should be a toll free Common Call Center number for all banks.  Customer of any bank should be able to call that number and thereafter get diverted to the concerned bank based on option selected by them.

21.  At present, per Bank there is an insurance cover of Rs. 1,00,000 so that deposits till Rs. 1,00,000 are safe in case of any default by the bank.  The committee recommends to raised this limit to Rs. 5,00,000 to encourage individuals to keep more deposits in the bank.

22.  Hiring of the locker facilities is one of the most cumbersome aspect of banking.  First of all there are not enough banks with locker facilities.  Further, banks always cite the reason of locker not available in case any customer approaches them.  In case anyone wants to open a locker, banks force them to buy other products like fixed deposits of certain amount, ULIP insurance plan, etc.  The committee strongly opposes such practices of the bank and suggests that the locker allocation process should be transparent.  The customers should have availability of locker at an affordable charge and should not be forced to buy other products of the banks which they may not need.

23.  Customer should be able to block the ATM card by sending a SMS to identified bank number.

24.  Free SMS / email alerts should be sent for every transaction occurred.

There are several such recommendations in the report.  The entire report can be read on this link.  Most of the recommendations can easily be put into practice thanks to computerization and internet.  RBI has sought comments from the public on the above recommendations.  Comments can be made till 27th August 2011. We need to wait and see how much of these recommendations are accepted by Reserve Bank of India.

Will the above recommendations ease your interactions with Banks?  Do you have any further recommendations to be made?  Do share your comments and suggestions below.