A code for banks

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The Code obliges banks to be fully accessible to customers at all times and emphasises good and fair banking practices and transparency of operations.

THE CODE obliges banks to be fully accessible to customers at all times. N. Sridharan
THE CODE obliges banks to be fully accessible to customers at all times. N. Sridharan

Not too many of those having dealings with banks are likely to be aware that the Reserve Bank of India (RBI) has gone to great lengths to formulate an exhaustive 15-page code for banks setting minimum standards aimed at promoting good and fair banking practices, increasing transparency in transactions and fostering confidence in the banking system.

It has also set up a Banking Codes and Standards Board (BCSB), an autonomous, independent body to effectively monitor and assess the compliance with codes and standards prescribed.


The code imposes inescapable obligations on all banks to be fully accessible to customers at all times, provide them full information on the scope and cost of the various services and products, and ensure preparation and maintenance of complete documentation of every type of dealing in order to instil faith in customers on the public service orientation, professionalism and integrity of the banking system.

The code binds the banks to adhere to certain `key commitments' one of which is the increasingly sidelined, so-called `customer delight'. As the RBI Governor,

Mr Y. V. Reddy, put it: "...though the general perception was that the liberalisation of the financial sector would induce competition which in turn would ensure good quality of customer service to the common person, in practice it had not come about in the manner ...expected."

If the code does nothing else but brings about a change of heart in the bank managements on this much-trumpeted, yet not fully evident, attribute of competitive economy, it would have done a distinct service.

Banking Ombudsman

The most important parts of the Code have to do with procedures for giving full and quick satisfaction to customers in attending to their complaints and grievances.

The RBI has appointed, in most State capitals, a Banking Ombudsman, vested with quasi-judicial powers to enforce decisions; customers can approach them if they do not get a satisfactory response from their banks within 30 days of lodging the complaint.

The existence of the Code should not, however, affect the stringent enforcement of the various supervisory controls by the oversight mechanisms, which are an integral part of the RBI, especially because the Code is voluntary and applies only to those banks registering themselves with the BCSB.

The RBI should, in fact, see to it that it is made automatically applicable to all banks.

On foreign banks

In addition, it is necessary for the RBI and the BCSB to keep a special watch on foreign banks to guard against cavalier treatment of their customers and to make them conform to India's economic policy objectives.

For instance, their contribution to total credit is only 6.7 per cent, as against more than 20 per cent extended by Indian commercial banks.

Under the liberalised criteria for expansion, the number of the branches of 40 odd foreign banks is bound to increase from around 225 as of now. With the entry of more foreign banks and the facility they will enjoy of holding 74 per cent stake in private banks and their subsidiaries being treated on par with domestic banks after 2009, the RBI should seriously think of establishing a special wing to watch over their activities.


(This article was published in the Business Line print edition dated October 4, 2006)
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