RBI Deputy Governor M Rajeshwar Rao raps banks for ignoring customer grievance redressal

Reserve Bank Deputy Governor M Rajeshwar Rao on Thursday expressed displeasure with banks for neglecting customer grievance redressal and urged boards and top management to address the issue.

Need for cultural and attitudinal change

Speaking at the Fibac summit organized by lobby groups Ficci and IBA, Rao questioned how a sector that prides itself as a service industry can conduct itself in such a manner. He emphasized the need for a cultural and attitudinal shift among banks to focus on customer grievance redressal, highlighting that an efficient, prompt, and cost-effective grievance redress mechanism is essential.

Technology and products outpace grievance redressal efforts

Rao criticized banks for investing heavily in acquiring new customers but giving little thought to improving customer grievance redress mechanisms. He said, "Unfortunately, it appears that the efforts of the banks to provide timely solutions to customer grievances have not kept pace with the explosion in technology and products."

Empathy towards vulnerable customers

The Deputy Governor urged banks to ensure that their employees treat senior citizens, differently-abled individuals, and those who are technologically challenged with special care and empathy. He emphasized that an empathetic approach can help banks win customers and announced that the banking industry regulator will focus on these aspects in its interactions with lenders.

Serving Gen Z consumers and evolving banking landscape

Rao highlighted the need for banks to cater to the needs of Gen Z consumers and listed several changes he foresees in the banking system, including radical ones. He said the era of exclusive banking services by banks is likely over, and with the Banking-as-a-Service (BaaS) model gaining traction, banks must operate as part of a larger ecosystem with non-bank players. He pointed out that initial changes in this direction are already visible.

The Deputy Governor emphasized the need for banks to transition from a sectoral approach to an ecosystem approach, where markets become the central point for intermediation and lenders interact with various entities in the marketplace. He also noted that lenders may need to shift from isolated service provisions to hyper-personalized embedded banking.

Fortifying cybersecurity and preventing cyber frauds

In light of recent incidents, Rao urged lenders to focus on fortifying cybersecurity and preventing cyber frauds. He mentioned the emergence of digital misselling through "Dark Patterns," which are designed to trick users into availing high-cost short-term consumer credit disguised as instant loans. He also highlighted fraudulent apps, breaches of privacy, and deep fakes as growing concerns.

Reevaluating risk management frameworks

As the banking business undergoes a shift, Rao suggested that the regulator may need to reexamine risk management frameworks, particularly for liquidity and market risk.

Reserve Bank Deputy Governor M Rajeshwar Rao's address at the Fibac summit highlighted the urgent need for banks to prioritize customer grievance redressal and adapt to evolving customer needs. He emphasized the importance of cultural and attitudinal changes, empathy towards vulnerable customers, and embracing technology to enhance customer service. The banking industry is undergoing a transformation, and banks must be prepared to operate in a larger ecosystem with non-bank players. Fortifying cybersecurity and preventing cyber frauds are also critical areas of focus. By addressing these concerns, banks can enhance customer satisfaction and remain competitive in the rapidly changing banking landscape.