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Click Here For Highlights of RBI's Annual Policy Statement for 2005-06
Part II. Annual Statement on Developmental and Regulatory Policies for the Year 2005-06
IV. Prudential Measures
(e) Customer Service
99. Liberalisation and enhanced competition accord immense benefits, but experience has shown that consumers' interests are not necessarily accorded full protection and their grievances are not properly attended to. Several representations are being received in regard to recent trends of levying unreasonably high service/user charges and enhancement of user charges without proper and prior intimation. Among the complaints received are: charges for balance enquiry, cheque status verification, signature verification, address confirmation, photograph verification, punitive service charges for non-maintenance of minimum balance in savings accounts, transaction charges for reorder of cheque book and for cash transactions at the branch beyond a stipulated number, and diversion of customers to usage of ATMs including payment for cash transactions.
100. It is instructive in this regard to note that in Canada, the issue of bank service charges was the subject of a 1988 investigation conducted by the House of Commons Standing Committee on Finance. The Committee report set out a number of recommendations, which have subsequently been reflected in market practice. The Committee recommendations resulted in improved disclosure of service charges and the designation of Office of the Superintendent of Financial Institutions (OSFI) to handle and report on service charge complaints.
101. In the US, organisations such as Consumers' Union are fighting to create legislation that will help protect vulnerable consumers from price gouging on checking accounts. American consumer groups are against what they call is the "trap of never-ending bank fees that is impossible to escape". They are demanding 'lifeline banking' legislation, which will give consumers access to basic banking services and protect them from exorbitant fees and surcharges for providing information such as signature and photograph verification. Several American states have implemented legislation for minimum no-frills services. Some states prohibit ATM surcharges.
102. In the UK, there exists an institutional arrangement whereby a separate board has been set up to oversee the code drawn up by the banks' association. The Banking Code of the British Bankers' Association (BBA) is a voluntary code, which sets standards of good banking practices for financial institutions to follow when they are dealing with personal customers in the UK. It provides valuable protection for customers on a day-to-day basis as also in the times of financial difficulty. The code applies to savings deposits and current accounts, card products and services, loans and overdrafts and payment services including foreign exchange. Taking account of all these considerations, it has been decided:
o To set up an independent Banking Codes and Standards Board of India on the model of the mechanism in the UK in order to ensure that comprehensive code of conduct for fair treatment of customers are evolved and adhered to.
o To issue appropriate guidelines to banks to ensure transparency and disclosure of information by the card issuing banks and customer rights protection including facilitating enforcement of such rights.
o To widen the scope of the Banking Ombudsman inter alia to cover all individual cases/grievances relating to non-adherence to the fair practices code evolved by IBA and adopted by individual banks.
(f) New Capital Adequacy Framework in India: Implementation
103. As indicated in the mid-term Review of October 2004, draft guidelines for implementation of the New Capital Adequacy Framework were formulated and placed on the RBI website. In order to maintain consistency and harmony with international standards, banks were advised to adopt Standardised Approach for credit risk and Basic Indicator Approach for operational risk with effect from March 31, 2007. The Reserve Bank may consider allowing some banks to migrate to Internal Rating Based (IRB) approach after developing adequate skills both in banks and at supervisory levels. As banks would be allowed to adopt/migrate to the advanced approaches only with the specific approval of RBI, as a first step, banks which are aiming at adopting the advanced approaches should make an objective self-assessment of their fulfillment of the minimum criteria prescribed under Basel II.
104. As banks have two years lead-time to prepare themselves for Basel II, they are encouraged to focus on capacity building and undertake impact analyses. On the basis of the outcome of the impact studies, banks may put in place appropriate strategies and plans for raising fresh capital or augment capital through internal resources. Banks may also redefine their business strategy with a view to altering their profile of risk exposures or adopt a combination of both these approaches to meet the capital requirement.
105. Under the New Framework, banks adopting Standardised Approach would use the ratings assigned only by those credit rating agencies which are identified by RBI. The New Framework also recognises the responsibility of bank management in developing an Internal Capital Adequacy Assessment Process (ICAAP) that is commensurate with banks' risk profile and control environment. Banks are, therefore, required to focus on formalising and operationalising their ICAAP, which will serve as a useful benchmark while undertaking the parallel run with effect from April 1, 2006.
(g) Ownership and Governance in Private Banks
106. It was indicated in the mid-term Review of October 2004 that the second draft on the policy framework for ownership and governance in private sector banks would be put in public domain. Based on the feedback received on the draft guidelines and in consultation with the Government, RBI has since issued final guidelines. These guidelines focus on ensuring 'fit and proper' criteria, on a continuous basis in respect of investments, restructuring and consolidation in the banking sector and provide for observance of sound corporate governance principles. The Reserve Bank would enter into bank-wise dialogues to ensure a time-bound framework for compliance.
(h) Guidelines on Securitisation of Standard Assets
107. In the recent period, the market for securitisation of standard assets has grown significantly. In order to ensure orderly development of the market, draft guidelines on securitisation of standard assets by banks/financial institutions and NBFCs were issued and placed on the RBI website for comments. On the basis of the feedback, the draft guidelines would be finalised.
(i) Guidelines on Purchase/Sale of Non-Performing Assets
108. With a view to further increasing the options available to banks for effectively addressing the issue of non-performing assets, draft guidelines were issued on sale/purchase of non-performing assets and comments thereon were sought from the banks by end-April 2005. The guidelines broadly cover the areas on procedure for purchase/sale of non-performing financial assets by banks including valuation and pricing aspects, prudential norms, and disclosure requirements, and would be finalised on the basis of feedback.
(j) Modification of CDR Mechanism
109. Performance of the corporate debt restructuring (CDR) mechanism has been reviewed and it has been decided to make changes in regard to criteria for the minimum exposure and number of lenders for deciding on CDR package; rationalisation of regulatory concessions; applicability of the extant instructions relating to asset classification only for the first restructuring of debt; and flexibility in exit option by allowing one time settlement (OTS). Draft circular is being put in the public domain for wider dissemination before taking final decisions.
(k) Working Group on Conflicts of Interest in the Indian Financial Services Sector
110. As indicated in the mid-term of Review of October 2004, RBI has constituted a Working Group on Conflicts of Interest in the Indian Financial Services Sector (Chairman: Shri D.M. Satwalekar). The Report of the Group is expected by July 2005, which would be put in the public domain for wider dissemination before recommending for adoption.
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