Kanungo Committee Has Practical Suggestions for Bank Customers. It Is up to Us To Ensure They Are Enforced
The customer services committee headed by former deputy governor of the Reserve Bank of India (RBI), BP Kanungo, has come up with a crisp set of recommendations that have addressed all the important pain points faced by consumers in dealing with banks and other regulated entities (REs) of RBI.
In the 12 years since RBI had last undertaken such a comprehensive review of consumer issues, there have been dramatic and life-changing events, such as demonetisation, the COVID pandemic and development of tech-based products, which have changed the way people engage with REs. The Kanungo committee does well to say that it is time consumer issues and grievance redress took a ‘principle-based’ approach rather than the present attitude where all issues outside a rigid complaint matrix are rejected. RBI’s own banking ombudsmen are notorious for treating customers unfairly and ignoring concepts of fairness and equity while dealing with complaints. 
Importantly, the committee has a frank assessment of dud initiatives of the past, in some cases, backed by shocking data. Personally, I am gratified that the report had dealt with most suggestions made by Moneylife Foundation; but the bigger battle of getting these converted into strict regulations, and enforcing them, remains. A plus factor is that RBI, under governor Shaktikanta Das, has been very receptive and proactive on consumer issues and is also handing out monetary penalties more freely than ever before. Here’s a look at the committee’s key suggestions that affect us.
KYC Harassment: A big revelation of the committee is its categorical assertion that regulation does not allow the freezing of customer accounts and dishonouring of cheques for want of know-your-customer (KYC) updation (para 4.4.2). This is a startling revelation, especially since banks have been freezing accounts with impunity and have gone unpunished for years, even when banks have repeatedly failed to inform customers about the need to update KYC. This harassment is unleashed on the grounds that it is mandated under the Prevention of Money Laundering Act (PMLA). Bankers also claim that RBI inspectors badger them to freeze accounts if KYC is not updated. Since the Kanungo report does not bother to address these aspects, we still don't know where the buck stops and RBI as well as the finance ministry need to clarify the issue.
On the positive side, the report acknowledges that KYC is repeatedly sought for different facilities availed from REs. It recommends a centralised database for KYC documents linked to a unique customer identifier and the use of video KYC. The committee hasn’t gone into whether unique customer ID is, indeed, unique as claimed. I have recently written how this may not be the case (When Unique Customer IDs Are Not Really Unique, Bank Customers Are Inevitable Victims).
The frequency of updating KYC is supposed to be different for different categories of customers, depending on how they are categorised in terms of risk. Moneylife Foundation’s complaint—that risk-categorisation is non-transparent—also finds reflection in the committee’s recommendation, which suggests that banks have been categorising those with high salaries as ‘high risk’ even though inflow and outflow from their accounts is consistent. This would surely apply to pensioners as well. Similarly, it feels the need to recommend that students should be classified as ‘low risk’ suggesting that this has not been the case so far.
Consumer Charter, Internal Ombudsman & Disincentives: In December 2014, RBI grandly announced a consumer charter that spelt out five specific consumer rights that would have ensured a move to the ‘principle based’ approached recommended by the committee. It was rendered meaningless because there was no cost to flouting the charter. The committee has asked for a ‘suitable structure of incentives and disincentives’ that includes a ‘regulatory cost for entities where customer service is deficient’ and that the consumer charter be extended beyond banks, to all REs.
Despite a high-profile governor like Raghuram Rajan, banks succeeded in ensuring that there were no disincentives or penalties. This could happen again. Another dud initiative of that time was the internal ombudsman (IO), ostensibly to strengthen internal grievance redress. The committee is frank that the IO mechanism is ‘not functioning effectively’; complaints are rising consistently because there is no incentive to improve customer service at an ‘enterprise level’.
The report includes a table and the stunning statement that “an overwhelming percentage of rejected (fully/partly) complaints are not being referred to the IO by banks/REs before conveying a decision to the customer. It cites data to show that from November 2021 to 31 March 2023, less than a quarter (24.73%) of complaints was vetted by IOs and, in case of those that went to the appellate authority, the number was as low as 11.11%.
Does RBI need any more data to show that banks simply do not care for the IO mechanism rendering it a miserable failure? This data also reflects badly on RBI’s customer services department and its inspection teams which have not felt the need to recommend corrective action for so many years.
Data presented by the committee also shows that the number of complaints is extremely high and that public sector banks (PSBs) lead in poor and callous service. Among the private sector banks, which are lower on the list, Axis Bank is the worst as our own experience had shown.
Scrap the IO: When invited to make a presentation to the committee, I had pointed that the ‘absence of punishments leads to bad service’ and there is no punitive action or disincentive to bad service and sloppy grievance redress. The committee has three suggestions to deal with this: 1) incentives and disincentives; 2) empowering the banking ombudsman and RBI’s customer services department to take a ‘class action’ approach when there are a set of similar complaints and direct review and corrective action; and 3) compensation of IOs to be independent and paid through and independent mechanism, in response to complaints that IOs often rule in favour of banks.
The last recommendation will only amount to sticking a band-aid when you need amputation. The committee has data to show that the IO has failed. A framework of penalties and a class-action approach (or principle-based approach) by the banking ombudsman and RBI’s customer service department, along with the “agnostic common portal for lodging complaints”, a version of which already exists in the form of the complaint management system (CMS) set up in 2019, should fix the problem more effectively. If RBI, under governor Das, could dissolve the largely defunct Banking Codes & Standards Board of India (read: Pain Points of Bank Depositors and How To Redress Them), why not scrap the IO framework as well, since both were Utopian and could not have delivered results?
The RBI members and support staff on the committee appear to have forgotten another grand, but predictably dud, initiative under governor Rajan called SACHET to handle complaints online, across regulators. This remains online but finds no mention in the Kanungo committee report.
Standard Operating Procedures: Moneylife Foundation’s observation that the absence of standard operating procedures (SOPs) lies at the heart of many issues relating to transmission of funds to nominees and heirs, is reflected in the recommendations. It suggests that the Indian Bank Association (IBA) ‘may’ update its model operating procedure (MOP), in line with regulation, for hassle-free settlement of claims in accounts of the deceased account-holders, in various scenarios. The MOPs should be posted online with an automated process to submit documents and have them verified, says the report, citing specific examples of how nominees are currently harassed on this account.
Lost Documents: Another major issue, raised by Moneylife Foundation, was with regard to banks and REs losing original property documents (demanded by them as collateral against loans). The loss of any document in the ownership chain permanently impairs the value of property; but banks have been washing their hands off any responsibility (read: Lost Property Documents Permanently Damage Asset Values: Regulatory Solution Required for Fair Deal to Borrowers). The committee says that REs “should not only be obligated to assist in obtaining certified registered copies of documents at their cost but also compensate the customer adequately, keeping in view the time taken to arrange the alternate copies of the documents. [].”
Liability Insurance: Another serious issue that Moneylife Foundation has pursued is the need for ‘liability insurance’ to compensate customers who may suffer an injury while availing services at the premises of an RE. Taking note of this, it is recommended that the RE must take ‘adequate insurance cover’ to ensure that customers are adequately compensated and bank staff must be made aware of this. Moneylife Foundation had gone a step further and established that banks already have liability insurance; but there is no mechanism to ensure payment and frontline staff at branches is unaware of the insurance. Hopefully, this recommendation, which imposes no additional cost on REs, will be accepted and effectively implemented by RBI.
Other notable recommendations on issues raised by Moneylife Foundation pertain to how REs have seamless online processes for opening accounts, but demand branch visits for closing them. We had pointed out that technology allows traceability of action, including tracking communication with customers. The committee has said that recourse to technology ‘should be a two-way process’ and insistence of physical visits should be ‘avoided’. Unless RBI takes steps to ensure this is followed, it will only be ignored. The same goes for ‘miss-selling’ of third-party products, continued harassment of senior citizens for life certificates and the need for doorstep services. Without specific rules that make it mandatory for banks to adopt better behaviour, it is safe to predict that the attitude to consumers will not improve.
The Kanungo committee’s recommendations are, indeed, very heartening from the customer perspective, but the real lobbying by banks will begin now—to prevent their implementation. I have already narrated all the key issues. It is now time for you, as customer of banks and other REs, to do your bit by writing to RBI to demand implementation of the recommendations—in letter and spirit. All you need to do is email your comments to [email protected] before 7 July 2023. You can also copy us at [email protected]
As requested by many readers, here is a draft of the email that bank customers may want to send to RBI...

This has to be emailed to:
[email protected] (you may copy [email protected] if you wish, it helps us track customer issues).

The Customer Services Committee,
Reserve Bank of India
[email protected]

Re: Implementation of the Kanungo Committee Report

Dear Sir/ Ma’am,

I have perused the Kanungo Committee Report, which makes some very relevant recommendations that will ensure that banks treat customers in a just and fair manner.

(Issues that affect you can be raised here, depending on your priority – please modify this draft suitably)

I am particularly affected by the repetitive Know Your Customer Requirements, and it is imperative that banks are not allowed to freeze our accounts or create needless panic by threatening to do so.

We trust banks to keep our life savings safe, and our money helps run the bank. We need a two-way equation where banks are responsible for their action and ought to face the consequences when they 1) freeze accounts without adequate notice to customers, 2) lose property documents, 3) create their own rules with regard to nomination and transmission, and do not complete the process in a reasonable time 4) do not resolve genuine grievances in a timely manner 5) do not compensate customers for an injury suffered on bank premises.

Grievance redress cannot end with a resolution, when it has caused mental harassment, injury or financial loss, there should be adequate compensation. The Kanungo committee has excellent suggestions on all these issues. I strongly urge you to implement all its recommendations.

Thanking you
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8 months ago
Thanks for your excellent efforts. My experience with banks about kyc is as follows. I am NRI from 1981 onwards.Bank insist on several documents and freeze the debits to my accounts and further do not register with ckyc and do not share the information. One bank registered my info in June 22 with cvl KRA me as "resident individual " which I came to know from cvl kra intimation. Same bank has asked me to do rekyc now. Is there time limit for asking for rekyc. To my understanding once done by one bank should be valid for all other accounts.
I should mention for your excellent efforts for resolving problems faced by account holder.
10 months ago
Thanks your continuing advocacy. An urgent need is to a transparency in the IVR and Live Chat flow charts. For example when I had a doubt about a transaction, through a payment gateway due to inadequate info recieved from the only option I got from the IVR was 1 for OK and 9 for block account. which then block your card, e banking, even access to the transactions. At every screen/option there should be an option to know.. a) the path in the flow already selected, and data received, b) the various paths, and options to come. And at every point there must be an others/ give details option..
10 months ago
Just a thought: for the category of "Lost Property Documents" why can't there be a depository created to manage these valuable property documents for the banks - along the lines of CDSL for DEMAT docs? There could be a nominal charge for opting for this service with an unique ID/ document number given to clients who have handed over the property documents.
10 months ago
In my personal opinion the only way to ensure improved customer service and seamless implementation of the suggested recommendations esp in case of KYC is to make everything system driven (just like CCTV tracking is the best option for traffic control, though it may have a 1% to 5% failure rate)! For example, why can't there be a system generated alert/ sms which goes out to a customer 15 days before the due date of renewal? Trying to track manually for the large volumes in India is a big challenge.
Dilip Modi
10 months ago
Bravo Suchetaji / ML. Yes, individuals have to play their part and take it forward. Just a thought.... additionally, can an online petition help in this cause?
10 months ago
Thanks for the timely article. I have sent a mail to rbi along with a copy to you. You are indeed doing a wonderful job.
10 months ago
Kudos to Moneylife Foundation and Sucheta Dalal for getting most of their suggestions accepted by the Kanungo Committee to streamline Customer services.. We all know that the Customer Redressal System is only for name sake.Even the Principal Nodal Officer of the Bank has no power to get redressal to the customers. I say that all acts of Deficiency in service should be treated as "UNFAIR PRactice" under the Consumer Protection Act and the Central ConsumerProtection Authority be empowered to take cognizance of such complaints and impose punishme.nts on such deficient REs
Replied to mohansiroya99 comment 10 months ago
Thank you sir. You may want to share your feedback or comments and request that the suggestions made in the report be implemented by the RBI. You can send an email to [email protected], keeping both [email protected] and [email protected] copies in the mail.
vilas k
10 months ago
If there\'s monetary punishment, the losers will be shareholders unless there\'s a system
Replied to vilas k comment 10 months ago
I am flummoxed. You prefer to be a bigger loser as a customer? None of us can do without bank accounts. Also, one would expect shareholders to join the effort to pressure banks into better services so that there are NO PUNISHMENTS or Penalties and hence losses!!
10 months ago
Kamal Garg
10 months ago
1. So long as Ombudsman is appointed from the pool of ex-banking industry personnel, the situation is not going to improve because they are the perpetrators of all sorts of deficient services by their respective banks. Ombudsman should be appointed from a judicial background and/or a consumer service background.
2. Failed to understand under PSU banks, SBI's name at the top (ostensibly with highest number/percentage of complaints), whereas, in case of private banks the highest number/percentage of complaints are from ICICI Bank/HDFC Bank/Kotak Mahindra Bank; and their names were hidden in melee of so many rows giving the impression that every thing is alright and ok with these giant private banks.
10 months ago
A draft version of the letter could be useful to cover all the relevant points.
10 months ago
It needs to be seen how this will be implemented and how the scheduled banks will be more customer centric instead of harassing them especially sr citizens and aged people.
10 months ago
Do we really need all this harassment to deal with our own money? Those freezing accounts must be made liable monetarily.
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