Three months into his tenure as the 26th governor of the Reserve Bank of India (RBI), Sanjay Malhotra delivered a hard-hitting
speech at the annual conference of bank ombudsmen, on 17th March. His words raised hopes of a much-needed transformation in how banks handle customer grievances. However, real change remains unlikely, unless the governor backs his tough talk with penalties and enforcement.
Rising Complaints
“Not only are a large number of complaints getting escalated, a large proportion of them – nearly 57 per cent of the maintainable complaints last year – required mediation or formal intervention by the RBI Ombudsmen. You would all agree that this is a highly unsatisfactory situation and needs our urgent attention,” said governor Malhotra highlighting a worrying surge in customer grievances under RBI’s ‘Integrated Ombudsman Scheme’. Complaints increased at a staggering 50% compounded annual growth rate (CAGR) over the past two years, reaching 934,000 in 2023-24.
Worse, in what the governor called a ‘gross regulatory violation’, banks were found to be deliberately misclassifying complaints as ‘requests, queries, and disputes’, preventing them from being addressed. This number is on top of the 10mn (million) complaints received by 95 scheduled commercial banks in 2023-24, a figure that doesn’t even include complaints against non-banking finance companies (NBFCs) and other RBI-regulated entities (REs).
A Nordstrom-level Service Culture? Not Yet
Governor Malhotra believes that even a single customer complaint is unacceptable. He recounted the famous Nordstrom story, where a customer returning snow tyres received a refund—despite the store only selling apparel and shoes—because Nordstrom had recently acquired a retailer that used to sell tyres. He wants Indian banks to adopt a similar customer-first approach. For Indian customers, this expectation is amusing. A vast number of us have endured harassment due to the unilateral freezing of accounts for updation of know-your-customer (KYC) documents, while others struggle with unresponsive banking systems. The governor aims to prevent complaints from escalating to the banking ombudsman by ensuring banks handle them effectively at the initial stage. He called for:
- Systematic tracking and resolution of complaints surfacing on social media before they escalate.
- Treating repeat complaints as systemic failures requiring root cause analysis.
- A two-tier grievance redress system in large entities, with internal ombudsmen (IO) reporting to high-ranking officials.
Yet, banks already have board-level customer complaints committees which are largely ineffective. Even complaints routed through the
PG Portal once received better attention—but that, too, has faded away.
This led to RBI then tinkering with its master directions for IOs in 2023. In January 2024, deputy governor J Swaminathan, addressing IOs again pointed out that “some entities do not escalate the complaints to IO.” Will the latest speech make any difference?
Mr Malhotra identified KYC, digital fraud, mis-selling and aggressive recovery practices as four areas that need improvement. Let’s analyse what is happening in just one key area.
KYC Nightmares: A Never-Ending Hassle
Governor Malhotra pointed out that once a customer’s KYC details are updated, they should automatically reflect on the ‘Central Know Your Customer Records Registry’ (CKYCR). The update is notified to all REs who are expected to check CKYCR records before seeking documents from customers. However, “most banks and NBFCs have not enabled the same in their branches/business outlets, causing avoidable inconvenience to customers,” he says. The bigger problem is that the biggest banks have a pathetic record of updating even basic customer data. (
Read: Beyond KYC Headaches: Building Trust and Security in India's Finances). So, why hasn’t RBI taken action?
Governor Malhotra believes artificial intelligence (AI) can revolutionise grievance redress by automating complaint categorisation and analysing large datasets to detect systemic issues. AI, he suggests, could improve speed, accuracy and fairness. While promising, AI remains a distant hope when banks fail to implement even basic complaint-tracking mechanisms properly. Until RBI enforces stricter penalties, technological advancements won’t matter.
A Citizen’s Charter without Teeth
Governor Malhotra said that RBI’s plans to revise the 2014 Citizen’s Charter to include service timelines for banks.. The original charter defined five consumer rights: right to fair treatment, right to transparency, fair and honest dealing, right to suitability, right to privacy and right to grievance redress and compensation. These are already comprehensive. They need to be become effective.
Key Policy Gaps RBI Must Address
At Moneylife Foundation, we have repeatedly raised crucial issues with RBI and the Kanungo committee that require urgent
action :
1. Stop Banks from Illegally Freezing Accounts for KYC
Despite the Kanungo committee stating that banks have no right to freeze accounts due to KYC updates, the practice continues unchecked. RBI itself admitted in an RTI response (January 2021) that it had issued no specific instructions preventing such actions. Consequently, banks frequently demand additional or irrelevant personal data during re-KYC processes, violating guidelines, with no penalties imposed (
Read: KYC: Banks Don’t Have the Right To Freeze Accounts. It’s Illegal). Customers face financial losses, but banks face no consequences. To address this, RBI must:
- Prohibit account freezing for pending KYC updates; ensure banks upload data on CKYCR; and check the database before demanding documents.
- Mandate a verifiable digital record of all KYC-related communications to prove that three notices have been issued before freezing account.
- Impose penalties for needless harassment.
2. Standard Operating Procedures (SOPs) for Asset Transmission: Unlike SEBI, which now has clear SOPs and penalties for delays in asset transmission, RBI continues issuing circulars with little effect. SOPs with strict deadlines and consequences are needed to streamline inheritance processes and prevent undue delays. RBI also needs to coordinate with SEBI to use a centralised death register to streamline transmission through easy verification of data.
3. Improve Unclaimed Deposits Gateway To Access Information (UDGAM): While RBI’s UDGAM portal helps customers locate unclaimed deposits, it remains cumbersome. Adding Boolean search functions and user-friendly enhancements can make it significantly more effective.
4. Lost Documents: Banks have, often, caused immense damage to borrowers by losing or misplacing original property documents submitted as collateral against loans. In most cases, banks refuse to acknowledge the loss or compensate customers. There are no clear rules in place to address the situation when documents are lost. RBI must mandate that banks must provide the borrower with an affidavit-cum-indemnity-bond (ACIB), in addition to a certified true copy of the document in a time-bound manner and prescribe a compensation formula for diminution of property value. This suggestion has been accepted by the Kanungo committee but its recommendation has not been implemented (
Read: Lost Property Documents Permanently Damage Asset Values: Regulatory Solution Required for Fair Deal to Borrowers)
Will This Be More Than Just a Speech?
Governor Malhotra’s words inspire hope; but unless RBI backs them with meaningful action, they will remain just that. The biggest test of his commitment will be whether he:
- Penalises banks for failing to upgrade CKYCR access.
- Holds banks accountable for misclassifying complaints.
- Enforces strict SOPs for grievance redress and asset transmission.
Improving grievance redress needs regulatory action, not just speeches. If the governor’s push translates into decisive action, we may, finally, see a shift towards consumer-friendly banking. Otherwise, it will be yet another case of powerful rhetoric with no follow-through.
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I AM THANKFUL FOR YOUR DETAILED ANALYSIS OF THE SYSTEM WORKING.
I ONLY SAY THAT ANY SUPERVISING AGENCY IF CHECK ONLY ONE PERCENT OF THE CASES AT ITS SUPERVISING LEVEL AND IMPOSE PENALITIES NON BEARABLE IF FOUND COMPLIANCE LESS THAN SAY 90% OF THAT 1% IE NON COMPLIANCE OF MORE THAN ONE OUT OF 1000 THAT TOO REGULARLY WITHOUT ANY BIAS WILL SHOW THAT RESULTS WITHIN 30 DAYS AND WILL IMPROVE THE COMPLIANCES.
I BELIEVE IN LESS ORDERS/INSTRUCTIONS MORE COMPLIANCE AND EFFECTIVE SUPERVISION.
LESS BUT EFFECTIVE GOVERANCE
ONLY CKYC AND ITS REVALIDATION BY CENTRAL AGEENCY
WITH REGARDS
When I went to submit my documents, not only did they insist on my providing them the Aadhaar card copy, they also insisted on my providing them my exact income! I HAD to provide the information because I could not take the chance with their freezing my ppf account at the end of the financial year. These documents are not mandated by RBI. Unless there is exemplary punishment for such muleheadedness, things are unlikely to ever improve, however pious the speeches by governor RBI.
The RBI, as a Regulator, is as anti-consumer as any other Regulator.
I would suggest a class action case against individual banks, AIBA and RBI itself. I would be happy to join such an initiative.