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Instances of banks acting contrary to the instructions of the banking regulator on customer service are not rare. Taking advantage of consumers’ lack of awareness about these instructions, banks often violate not only the directives of the RBI, but in many instances, their own rules. Here are a few examples from the orders of the banking Ombudsman.
It is mandatory for banks to follow the KYC norms, but KYC does not mandate that you cannot open an account unless the person is introduced by another account holder. The purpose of the KYC is to ensure that the proper identity of the customer is established. So long as you can do that, the bank should not have any objections. In this case that came up before the banking Ombudsman, for example, the client approached a bank to open a savings bank account to enable his employer to credit his pension amount. The bank, however, quoted KYC guidelines and refused to open the account as he did not know anyone banking with that particular bank. When he complained, the bank said this was a mandatory condition for opening accounts. However, the Ombudsman observed that no such condition was mentioned in the "KYC-FAQs" mentioned on the bank’s website. The bank was advised to stop this restrictive practice and insert appropriate changes in its Citizens’ Charter regarding the alternate proof of identification required to be produced while opening an account (in the absence of introduction from a customer of the same bank).
Similarly, the RBI instructions on unclaimed deposits/inoperative accounts in banks clearly say that an account should be treated as inoperative or dormant only if there are no transactions in the account for over two years. The circular clarifies that for the purpose of classifying an account as inoperative, both the type of transactions — debit as well as credit transactions induced at the instance of customers as well as third party — should be considered. Where a customer has given a mandate for crediting the interest on fixed deposit account to the savings bank account, it should still be considered as a customer-induced transaction and such accounts should be treated as operative accounts. Again, the RBI’s fair practices code for lenders makes it very clear that banks have to be absolutely transparent in the charges levied by them, whether it is in respect of the interest charged or the processing fee. Banks should give copies of all the papers signed by the client. Yet there are complaints of banks misleading people on interest rates, levying charges not specified earlier, etc. In this case that came up before the Ombudsman, the complaint was that the bank had levied supervision charges on a housing loan, without any prior information or intimation. The bank, when questioned, argued that the charges were recovered as per its "internal guidelines" and furnished a copy of the loan sanction letter, according to which, processing charges and service charges were to be recovered from the loanee.
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Let us begin with
opening an account in a bank. If you approach a bank to open a
savings bank account, one of the first things that they tell you is
that you have to be introduced by an account holder in that particular
branch. If you do not know anyone, then it is too bad. For
good measure, they quote you (their interpretation, of course) the KYC
norms. Most people do not even know what KYC stands for – it is
‘know your customer’ guidelines given by the Reserve Bank of
India to prevent misuse of banking services by fraudsters and
terrorists.
