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These institutions must respect the rights of customers and not rip them off, say depositors, former bankers and activists. It is high time the RBI brought some order into the chaos    

~By Ajith Pillai

We have been conditioned to repose faith in our banks. Advertising and promotional material have over the years repeatedly reinforced the message that the folks who safeguard our money are above board and serve our interests. It is only after demonetisation and the chaos that it unleashed that we began to take a second look at our banks. Suddenly, the cracks surfaced and the guardians of our earnings began to look different—almost indifferent to our concerns.

Last fortnight, a group of bank customers, former bankers, NGOs, consumer activists and senior business journalists Sucheta Dalal and Debashis Basu met in Mumbai to deliberate over the concerns of bank customers. In a memorandum to RBI governor Urjit Patel, with copies to the prime minister, Union finance minister and secretary, financial services in this ministry, they questioned some of the practices followed by the banks. They urged the RBI to urgently change policies to ensure that banks treat their customers fairly.

Honoured at last

A March 15 order says that banks must process bearer cheques without asking for ID proof

In the context of banks being unfair to customers, the March 15, 2017 ruling of the National Consumer Disputes Redressal Commission becomes pertinent. It awarded a compensation of Rs 10,000 but more importantly, pulled up the Sandhurst Road branch of HDFC Bank in Mumbai for refusing to hand over cash to a bearer of a cheque as “a clear case of deficiency in service”.

The case goes back to May 2010 when Prakash Sheth presented a bearer cheque for Rs 3 lakh to the Bank issued by his nephew, Chirag. Prakash needed the money urgently for a hospital treatment of his mother. The cashier told him that he would have to come back later because of paucity of funds at the branch. When he returned, the cashier demanded a photo-ID from Prakash, which he was unable to furnish.

The Bank then followed the normal practice of calling up Chirag to confirm if he had issued such a cheque and if it must be paid to the bearer. The cashier as well as the bank manager went through the process but refused to honour the cheque till Chirag came in person to the Bank. He could not present himself and the cheque was not honoured.

Prakash decided to fight the case and justice came to him seven years later. He told the media: “Most banks harass non-account holders who come with bearer cheques. Mine was perhaps the first challenge before a legal forum. This case will spread literacy amongst consumers or bearer cheque holders, and will hopefully be a lesson to similar banks who adopt this malpractice.”

—Ajith Pillai 


The memorandum said: “We are disturbed at the unfair treatment that bank customers suffer in the form of frequent, arbitrary and one-sided increase in banking charges, or the refusal of banks to automatically pass on contractual benefits such as lower interests to those with floating rate home loans or the rampant mis-selling of third party products such as insurance.”

While the memorandum addressed several issues relating to digital payments, unfair agreements, faulty systems and frequent upping of charges, it also pushed for the proper implementation of the RBI Charter of Customer Rights issued in December 2014. This Charter had recognised five basic rights—right to fair treatment; right to transparency; right to suitability (products offered should be based on an assessment of the customer’s financial circumstances and understanding); right to privacy and right to grievance redress and compensation.

According to the RBI, there were 3,870 bank fraud cases involving Rs 17,750.27 crore reported between April-December 2016

The RBI had asked banks to implement the Charter but that has not been done. As a result, it exists only on paper and requires a formal directive from the central bank before it is implemented. “The Charter covers almost every problem that consumers are likely to face. But three years later, the RBI has not fixed time frames for grievance redressal nor announced penalties for failure to treat consumers fairly, despite repeated appeals by consumer groups. Consequently, the Charter remains a toothless statement,” says the memorandum.

Public anger against banks was muted but came to the fore when some of them, including SBI, recently announced the decision to limit free withdrawals and charge people for additional use of ATMs and cheque facility. Dalal, who has been campaigning for bank customer rights, said: “These charges are hefty. Many banks plan to charge as much as Rs 150 after every fourth or fifth withdrawal. The government’s studied silence over the anger spilling out on social media suggests a quiet deal to allow banks to recover their losses on the extra time and effort made during demonetisation.”


The memorandum highlights how the RBI may have good intentions but does not put them into practice. Thus, it issued a draft circular in August 2016 on limiting customer liability and shifting the onus of proving customer fault in an unauthorised transaction on banks. But a final circular is yet to be issued. The memorandum notes that “with the increased use of digital payments post the demonetisation drive, it is necessary to have in place a mechanism or system to protect customers… A Master circular/notification by the Reserve Bank on limiting liability in an unauthorised banking transaction will make a huge impact on protecting customers from frauds.”

Reserve Bank of India Governor Urjit Patel with Finance Minister Arun Jaitley (right) at a seminar in Mumbai. Photo: UNI
Reserve Bank of India Governor Urjit Patel with Finance Minister Arun Jaitley (right) at a seminar in Mumbai. Photo: UNI

That bank frauds which impact customers are a matter of concern would be an understatement. According to RBI figures, there were 3,870 cases involving Rs 17,750.27 crore reported between April-December 2016. SBI reported frauds worth Rs 2,236.81 crore, Axis Bank, Rs 1998.49 crore and Punjab National Bank, Rs 2,250.34 crore. With online banking being given much prominence, the fear is that these numbers will only increase.


In the confusion that prevails post-demonetisation, banks are known to enforce rules of their own at the local level. Thus, customers in several banks in Delhi–both private and PSUs—discovered recently that new Rs 2,000 and Rs 500 notes were not being accepted if they had any writing or ink marks on them. They were told that this was part of the RBI’s “Clean Note” policy. However, when a journalist of The Sunday Guardian approached the RBI, its spokesperson Alpana Killawala, had this to say: “The RBI does follow the clean note policy, but that does not mean that the banks can reject a currency note which has an ink mark or scribbles on it. It is very much legal tender and the banks should accept such notes.”

The truth is that the RBI did issue a circular in August 2015 where it urged the public not to “inscribe’ on notes as part of its larger plan to withdraw soiled notes to replace them with fresh currency. But it also urged banks to accept soiled notes so that customers would not have to approach the central bank to exchange them. The circular was merely given a twist by individual banks and customers needlessly harassed.

The memorandum to the RBI also addresses the issue of banks increasing charges and billing customers “by stealth through opt-out clauses that are not noticeable that must be stopped immediately.” Thus, banks are known to levy charges for an “invite only program which assumes that the customer is already in and willing to pay for it. The levy is only stopped when the consumer notices and calls the bank to protest”.

Very clearly, the RBI needs to spell out clear-cut rules that protect customer rights in the digital era. It must not allow banks to arbitrarily draw up terms of engagement in which the customer is constantly short-changed and made to pay for errors committed by employees or algorithms. If the central bank does not act, then the banking system runs the risk of losing credibility.

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