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What an Idea! RBI Wants Banks to Treat Customers Fairly

A lot more than just a change of mindset will be needed to stop banks from mis-selling third party products

The Reserve Bank of India has come up with one of the most radical new ideas in Indian banking--that banks should treat customers fairly while selling third party products! Or actually, not quite. Last week, a number of newspapers and magazines had news articles headlined like 'RBI asks banks to treat customers fairly', 'RBI to tighten norms to check mis-selling by banks', and 'Mis-selling: Treat customers fairly, RBI to tell banks'. The news items referred to the RBI's statutory annual 'Report on Trend and Progress of Banking in India 2012-2013'.

This document has a small section on customer service in banking services (3.73-3.75) which states that of the 232 recommendations made in 2011 by the Damodaran Committee on Customer Service in Banks, 155 have been implemented. It then says (para 3.75) that 'In order to further improve customer service in Indian banks and financial institutions, the Treating Customers Fairly (TCF) model can be attempted', which is something that is followed in the UK. It also says that 'The intent and basic structure for TCF is in place in India for banking products of scheduled banks. However, it is now being considered to extend the TCF structure to third party products, viz., mutual funds, capital market and insurance products sold by banks'. That is that. By no stretch of imagination can the RBI 'can be attempted' be construed to mean that anything has actually been done, as the news articles have suggested.

It's widely known to everyone except, clearly, the Reserve Bank of India, that mis-selling of third-party products by banks is by far the biggest problem faced by bank customers. It's notable that this TCF as referred to is a 'soft' measure that is about changing mindsets and cultures and so on. Clearly, for mis-selling of third party products to be tackled, the mindset that first has to be changed is the RBI's own.