Central Banking What would be the ideal New Year's present from banks in 2024?

 Central Banking What would be the ideal New Year's present from banks in 2024?

Central Banking What would be the ideal New Year's present from banks in 2024?

Junior executives should no longer be under pressure from banks to push complicated financial products that clients do not completely grasp or loans that they do not require.

India's banks really need to provide better customer service.

Customer service is still a murky area for the majority of Indian banks, even after numerous cautions from the Reserve Bank, and loan pricing seems ambiguous in this gray area.

When the central bank hikes policy rates, interest rates automatically rise; however, when the policy rate decreases, clients must visit the bank and often pay a fee to have their loan rates lowered. The relentless loan advertising that follows is nothing less than regular harassment.

When lenders are making goals for the new year, these factors should continue to be at the top of their list.

unfair penalty interest

The RBI brought up the problem of banks' poor customer service many times in 2023. On August 18, the regulator modified the guidelines on the penalties that banks might charge borrowers who violate the terms of their loans, claiming that the purpose of the penalties was not to increase profits.

According to the RBI, banks need to consider the penalty for non-compliance as a "penal fee" rather than as an additional charge to the interest rate on loans, known as "penal interest." Additionally, the central

A number of the bank's announced regulatory adjustments will take effect on January 1, 2024.

The RBI stressed that penal charges should not be capitalized, which means that additional interest will not be computed on such charges. It further said that this would not interfere with the regular procedures of interest compounding in the loan account.

The RBI made the announcement after noticing that many banks impose penalty interest rates higher than the appropriate interest rates in the event that a borrower defaults or fails to comply with the terms and circumstances under which the loan facilities were approved. Although the RBI said that the primary goal of punitive interest is to instill a sense of credit discipline, regulatory examinations have shown that different banks have different practices.

putting pressure on authorities by selling

In addition to punitive fines, widespread mis-selling of items via bank branches is the wider problem of consumer justice.

Senior management puts a lot of pressure on bank branches to push clients into purchasing insurance policies and other financial goods. Misselling often results from target clients not being sufficiently informed about the hazards associated with such items. One instance is the sale of AT1 bonds to FD holders by former Yes Bank personnel, who marketed them as "Super FDs"—that is, a financial instrument that offered the security of an FD but a greater rate of return. In the end, a lot of regular investors discovered that their money was trapped in these securities when banks wrote down AT1 bonds as part of the rescue.

When banks push items on clients, they are also being unfair to them. A private bank official was seen berating his young staff in a widely shared video from 2023 for not meeting insurance sales quotas. The lender ultimately decided to take punitive measures. Junior workers are compelled to pitch items to clients that may not be a good fit for them in such a hostile work environment.

vigorous marketing of credit

Individuals are tired of being pursued for loans. Being called by bank BPO repeatedly is considered harassment.

It is recommended that banks discontinue their daily practice of making cold calls to consumers and pressuring lower level executives to pitch loans or investment products that they are unfamiliar with. In addition, there are a ton of requests for recovery if the borrower defaults on the loan. Many examples of harassment-induced suicide have been reported when borrowers fail on loans that banks quickly offered without sufficient disclosure.

A group of significant recommendations made by an expert panel of the RBI in June 2023 served as a reminder to the banking sector to raise customer service standards to keep up with new offerings. On May 23, 2022, RBI established the panel, which is chaired by former Deputy Governor BP Kanungo.

It put up a set of suggestions on June 5, 2023, to raise the bar for customer service requirements in regulated businesses. One of the main recommendations is giving the RBI Ombudsman (RBI) the authority to order the relevant regulated institutions to examine each of these incidents, take the necessary remedial action, and verify compliance with the top bank. These included guidelines for contact center operations, deposit insurance coverage, and cross-selling.

Why is this such a huge deal? Banks must realize that they are businesses that handle public funds and operate on a foundation of trust. Whose trust is guaranteed to be lost by such activities, whether it is misrepresenting items or imposing unreasonable punitive costs on customers?

The good news is that we have an attentive regulator who looks out for the best interests of the typical client. However, self-regulation, as opposed to governmental intervention, should ideally result in fairness in consumer interactions. In order to make sure that the regulations are obeyed in word and spirit, bank boards are crucial.

The primary goal for banks in 2024 will be to enhance the client experience. I hope everyone who reads Banking Central has a happy new year.

Every week, Banking Central examines the most significant advancements in the industry and makes connections for its readers.