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March 7, 2004

Give Highest Priority to Customer Service: RBI Governor exhorts Bankers

Banks should give the highest priority to customer service and reduce their
transaction cost as well as procedural inconveniences to the customers as a matter
of priority. Banks should also be prepared in terms of systems and skills to meet
the global challenge; capital adequacy for this purpose was less of a concern at
this stage. Dr. Y.V. Reddy, Governor exhorted bankers on these lines at a meeting
held at the Reserve Bank of India on saturday. The Reserve Bank meets Chief
executives of select banks every six months in order to share ideas and concerns of
mutual interest. Chairmen and Managing Directors of all public sector banks and
chief executives of some select private Indian and foreign banks were present at
the meeting. Smt. K.J. Udeshi, Deputy Governor, Smt. S. Gopinath, Smt. Usha Thorat,
Shri A.V. Sardesai, Executive Directors and other senior officials of the Reserve
Bank of India were also present. The Governor informed the banks that the Reserve
Bank has appointed a Standing Advisory Committee under Shri S S Tarapore, former
Deputy Governor of the Reserve Bank, to advise the central bank on auditing of its
procedures and practices with a view to making them simpler from the viewpoint of
enabling banks to render better customer service. The Reserve Bank had advised
banks to set up ad-hoc committees on similar lines at their level to look into
their own procedures and practices. The Governor urged banks to ensure that the ad
hoc committees set up in banks also keep in mind the objectives of customer service
of international standard and reduction of transaction costs. The Governor pointed
out that the Reserve Bank was considering the suggestion of appointing relationship
managers in banks on a pilot basis to deal with any queries and to coordinate with
the Reserve Bank and others. It was also considering developing a mailbox concept
to store the clarifications given by the Reserve Bank to individual banks so that
other banks could also access those clarifications. The Governor further urged
banks to evolve their loans and investment policies with more initiative and on an
interactive basis so that there was transparency, particularly in the area of
interest rates. Interest rates charged by banks to their borrowers should be based
on individual credit risk assessment rather than deal with them on a category-wise
basis. "The Reserve Bank could move out of prescription if banks have transparent
loan and investment policies ", he stated. Elaborating on the Governor's comments,
Deputy Governor, Smt. K.J. Udeshi stated that the Reserve Bank would like at least
the bigger and internationally active banks to seriously consider investing in
technology and developing skills to meet the challenges of the new Basel Accord.
Smt. Udeshi then outlined the sequencing of issues to be addressed by the ad-hoc
committees on customer service. Banks should first take up a review of their
procedures for individual transactions in foreign exchange so as to streamline the
documentation and reducing
the hassles for them. Streamlining the procedures for Government transactions
should be their next concern after which they could take up regulations relating to
public deposits and currency related issues. The ad hoc committees of banks should
submit feedback reports to the Reserve Bank, she directed. The Deputy Governor
exhorted bankers to give continuous publicity to fair practices adopted by them
from the viewpoint of lender's liability. They should also adopt fair practices in
areas other than lending, she added and pointed out that sharing of data of
customers with associates was an area of concern for the Reserve Bank. She also
expressed displeasure at banks which offered to sell their products through lottery
like schemes. The Deputy Governor asked banks to be prepared for tighter
provisioning norms and complying with Anti Money Laundering rules to be prescribed
by the Financial Intelligence Unit (FIU) set up by the Government. The rules when
put in place would require banks to monitor and report exceptional transactions.
She urged banks to put in place mechanism to capture such transactions. She also
urged bankers to work on a robust record retention programme and to train their
staff on "Know Your Customer" principles so that they could easily identify
exceptional transactions. She underlined the need for risk profiling of customers
in this context. Among the other issues discussed with banks were: accelerated
building up of investment fluctuation reserves, sharing information with Credit
Information Bureau of India Ltd. and exercising caution while processing of
documents in housing finance and personal loan related applications. Concerns
relating to housekeeping and internal controls, frauds and continued focus on
reduction of non-performing assets were also discussed. Drawing the bankers'
attention to the non-achievement of targets in the areas of loans to Small Scale
Industries, Kisan Credit Cards and Prime Minister's Rozgar Yojana, the Deputy
Governor urged the bankers to change their mindsets for this set of borrowers and
added that banks should use their discretion while insisting on collaterals and
lend at reasonable rates of interest to small borrowers, especially the
agriculturists and SMEs. These were the emerging areas for bank lending once the
top-end borrowers were able to directly access funds from the market, she pointed
out. She also urged them to develop branch level expertise on dealing with foreign
exchange matters especially relating to individuals.

Press Release: 2003-2004/1061

Alpana Killawala Chief General Manager