Despite core banking and full scale computerization, the quality of service in banks has generally deteriorated and the Code of Bank’s Commitment to Customers has done precious little to improve it. It is only by making the minimum level of quality of service mandatory that public can hope to get trouble-free, stress free and tension free banking, which they rightly deserve

Banking Codes and Standards Board of India (“the Board”) has issued an advertisement in newspapers recently, inviting suggestions for improving the Code of Bank’s Commitment to Customers (“the Code”) introduced by the Board in August 2009 for compliance by banks and which is now due for review.  
 

The whole exercise was initiated by the Reserve Bank of India (RBI) with the good intentions of improving customer service in banks by getting a commitment from member banks to provide a minimum level of service as listed in the code, but over a period of time, both the customers and the banks appear to have lost sight of the code and the commitments it contained, so much so, it is hardly visible both in its printed form and in its implementation. It was mentioned in the advertisement that copy of the Code was available at bank branches, websites of banks and on the Board’s website. To get a copy of the Code, I visited couple of branches of both the public and private sector banks nearby, but as expected, most of the counter staff in all these branches had no knowledge about the Code, much less its contents. However, every one of them directed me to their managers, who had fortunately heard about the Code, but could not provide me with a copy of the Code as it was not readily available in the branch. They, however, asked me to look up on their bank’s website, where it is available in its full form. Finally, at my request, one of the banks downloaded the entire Code, running into 40 pages, from its website and handed it over to me.
 

Background of the Code:
 

The RBI set up the Board in 2006 as an independent and autonomous watchdog to monitor and ensure that the banking codes and standards adopted by the banks are adhered to in true spirit while serving the public. The main objects of this Board, as mentioned in its preamble are: “To plan, evolve, prepare, develop, promote and publish voluntary comprehensive codes and standards for banks for providing for fair treatment to their customers.”  With this very limited mandate, this Board was set up with great paraphernalia and expectations that it would create a metamorphosis in the way in which the banking services are provided in our country. 
 

During more than six years of its existence, the Board came out with two model codes namely, Code of Banks’ Commitment to Customers and a Code of Banks’ Commitment to Micro & Small Enterprises. These two codes lay down minimum standards of banking practices for banks to follow, promise to act fairly and reasonably in all their dealings with the public and to ensure that their dealings rest on ethical principles of integrity and transparency. The elaborate manner in which the entire Code has been spelt out does indicate the earnestness with which the whole exercise was started by the RBI, which expected to derive supervisory comfort by making banks realize their responsibilities and thus bring down customer complaints in the banking industry.
 

The Code is long on promise but short on performance:
 

The Code makes several commitments to customers and banks are expected to follow not only in letter but in spirit also. But many of the commitments are vague in nature and there is no mechanism by which the promises made in the Code could be enforced either by the customers or by the Board. Initially the copies of the Code were printed and distributed by most of the banks to their customers but with the passage of time, both the banks’ staff and the customers have forgotten about the code and the commitments contained therein. This is borne out by the survey conducted by the Board and published in its latest annual report, which showed a very tardy and poor implementation of the Code by the banks. In fact one of the leading private sector banks has got the entire Code printed in a very narrow leaflet with such small letters/fonts that it is impossible to read it with your normal spectacles, which makes a mockery of the whole exercise.
 

The main reason for laxity in implementation of the Code is because it is a “voluntary code”, meaning that the banks are free to follow them, notwithstanding the voluntary commitment made by them to the Board. Therefore, there is a basic contradiction in the method in which the Board has tried to implement the Code among banks. The Board’s powers to enforce the Code are perfunctory because its constitution does not give the Board any concrete powers to penalize the banks, which violate the commitments contained in the Code. The maximum penalty it can impose on a recalcitrant bank is a public censure of the member bank, by notifying the media of the findings in respect of the breach and posting the press release on the Board’s website. It means that the Board can only bark, but cannot bite. Surprisingly, the website of the Board does not provide any information as to whether it has censured any bank in the past six years for non compliance of the code, though its own annul report mentions partial or lack of implementation of the Code on various parameters in several banks surveyed by the Board during 2011-12.  In a nutshell, the Code has proved to be long on promise but considerably short on performance. {break}
 

How to make the code workable and useful to the public?
 

This Board and the concept of the Code were modeled after the similar structure set up by the British Bankers Association in the UK where it was in force for a couple of years. Finding that a voluntary code has its own limitations, the Banking Code and Standards Board of UK was scraped in the then existing form in 2009 and the responsibility for the regulation of deposit and payment products was transferred to the Financial Services Authority. However, a Lending Standards Board was continued under the aegis of the British Bankers Association.
 

In India too, the Code in its present form has its own limitations as anything voluntary does not go beyond extending lip sympathy to the cause. As the Board was set up under the aegis of RBI, banks perforce had to exhibit obeisance, without any strong commitment to the cause. The Code too lacked brevity and clarity due to which it could not get the response it deserved from the banking public, who considered it as eyewash and an exercise in futility.
 

It, therefore, requires complete overhaul to make it workable and useful to the banking public and following are a few suggestions in this respect for the consideration of the Board and the RBI.
 

1. The Code should be made mandatory and not voluntary: First and foremost, the Code should be made mandatory for all the banks to comply without exception. A simple fiat from the RBI giving it a status as a directive issued under the Banking Regulation Act is enough to make it compulsory for all banks to follow at least in letter, if not in spirit.
 

2. The Code should be brief and to the point. The Code should convey the intentions intelligently, briefly and as efficiently as possible. By making it short and sweet, the banks would be able to co-relate their functions with the commitments made in the Code and thus be able to comply with it more easily and with a bit more honesty.
 

3. All commitments should be crystal clear with time norms for compliance: All the commitments made in the Code should be clear, concise and not vague, and should be benchmarked with time norms, to enable the banks to follow them with precision and comply with all their services within the stipulated time norms. This will help the banking public to clearly point out the deficiencies, if any, observed in the compliance of the Code by the banks.
 

4. Prescribe penalties for non-compliance or mal-compliance: The Code should contain penalties for non-compliance of any of the commitments made and the customer should be able to demand compensation for any such laxity on the part of the banks. Recently, the RBI has introduced a system of penalty whenever a customer fails to get cash from his account through the ATM due to its mal-functioning, but his account gets debited without dispensing cash. In such cases, if banks do not re-credit the amount within 10 days of the receipt of a compliant, banks are liable to pay to the customer, Rs100 for each day’s delay, as compensation, without even any demand from the customer. This has really warmed up the banks, which are now prompt in re-crediting the amount wrongly debited to customers’ accounts. These types of penal provisions should form part of the code, so that banks do justice to the Code.
 

5. Strict compliance of the Code at all levels in banks: The Code should be strictly enforced and wherever banks are found to be lax in implementing it, the Board should be vested with powers to recommend to the RBI to impose financial penalties on the banks concerned and the RBI on proper verification should levy penalties, if the bank is found guilty of non-compliance.
 

Despite introduction of core banking and full scale computerization of banks, the quality of service in banks has generally deteriorated and the introduction of the Code of Bank’s Commitment to Customers has done precious little to improve the service quality in general and the level of commitment in particular. It is only by making the minimum level of quality of service mandatory, coupled with penal provisions for non-compliance, that public can hope to get trouble free, stress free and tension free banking, which they rightly deserve.             
                                                                                                   

(The author is a banking analyst and writes for Monelylife under the pen-name ‘Gurpur’.)