RBI looks to check customer liability in banking frauds

The Reserve Bank is examining limiting a customer's liability in banking frauds and will soon put in place a framework for the same, Deputy Governor S S Mundra today said.
"RBI is already examining whether to issue regulatory direction with regard to limiting the liability of customers on fraudulent transactions arising out of frauds and electronic banking transactions," Mundra said at an event organised by the Banking Codes and Standards Board of India (BCSBI) here.
The objective of BCSBI is to plan, evolve, prepare, develop, promote and publish comprehensive codes and standards for banks and provide fair treatment to customers.

"The idea is that the liability for the customer should not go beyond a point," he made it clear.
The discussion, according to the deputy governor, centred on fixing the limit is on and a framework will be announced soon.
"We are discussing this and once we finalise, the limit will be announced. We expect to finalise it very shortly," he later told reporters.

Mundra said that with the increase in online transactions, there has been a rise in complaints related to electronic banking transactions, unauthorised fund transfers, fraudulent withdrawals from ATMs using duplicate cards and phising e-mails, among others.

"It is imperative to have a robust mechanism to prevent incidents of frauds in mobile Net banking and the electronic fund transfer so as to retain customers' confidence in these delivery channels," he said.
The deputy governor highlighted benefits of such channels from the banks' perspective faced with the challenge of competition and the need to improve customer base.
But at the same time, raising customer awareness for safe usage of these channels should be an important item on the agenda of the banks, he emphasised.
"... If customers don't get confidence in the channels and decide to abstain from them, then it can have only two outcome - either customer would migrate or customer would come back to the traditional channel which would mean higher operating cost for the banking system," he reasoned.

RBI is also concerned about the mis-selling of products by banks.
Mundra further said the RBI has undertaken study on mis-
selling of third-party products by banks in semi-urban and rural areas and the results are very startling.
He slammed banks for totally ignoring or rather knowingly violating the 'Right to Suitability' enshrined in the RBI's Charter of Customer Rights in an attempt to mis-sell products to customers.
Under the Rights to Suitability Charter, the products offered by the banks should be appropriate to the needs of the customer and based on an assessment of their financial circumstances and understanding.

"RBI is seized of this issue and may take a strict action, including heavy penalties, if the banking industry continues to follow such unethical and unaccepted practices of mis-selling of third-party products," Mundra warned.
He advised banks to put in place a system of periodic inspections of the sale of third-party products by either own staffs or by direct selling agents (DSAs).
The deputy governor said the RBI has recently undertaken a survey of 4,000 ATMs of various banks in the country and found the results to be not so comforting.
"Almost one-third of the ATMs those were surveyed, they were found to be not functioning at that point of time. There were several instances of violations of regulatory instructions on certain mandatory displays, on the facilities for differently abled customers," he said.

Mundra said the RBI is analysing the outcome and would be taking necessary supervisor action in this regard.
He said the RBI in consultation with the IBA is working on a standardised form for account opening across banks.
The RBI is also planning to augment the number of its banking ombudsmen offices in the near future, he added.