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Implementation of the suggestions of the Financial Sector Legislative Reforms Commission (FSLRC) handbook may lead to better financial services for retail customers. Yet, a lot of changes will be required at the ground level.
Some recommendations touch on consumer protection, a timeline and imposition of penalty. Some exist as guidelines by regulators.
One suggestion is the reasons for delays in approving applications be specified. A similar guideline was spelt by the Damodaran panel for bank customer services; it said banks should inform borrowers the time schedule for the disposal of loan applications upfront and take responsibility for not disposing the application in that period. However, those seeking loans aren't told why their loan applications are rejected.
Another view is regulations be issued on the suitability of advice to retail customers. The Insurance Regulatory and Development Authority (Irda) has issued guidelines saying policies be sold only after a need-based analysis. It is expected this will be implemented from April 1. However, since this will require projecting customers' incomes for the next 30 years or so, players are doubtful.
Ashvin Parekh, expert and advisor (financial services), EY India, says the biggest hurdle in enforcing these is the commission structure that drives most products. The Reserve Bank of India (RBI)'s guidelines on automated teller machine charges shows how the regulator has taken steps to protect consumer interests. But in the insurance sector, the regulator is yet to take steps to increase risk awareness. However, Parekh is hopeful as the market grows, the situation will change.
Some measures in the handbook, such as those related to penalty and transparency by inviting public comments for regulations, could be difficult to implement. Often, penalties to customers have been preceded by long-drawn legal battles. There is no standard procedure to award penalties. "In the UK, there is a huge penalty in case of mis-selling. But this may be difficult in our environment. While the RBI invites public comments and puts out a summary, customers may not know which suggestions have been incorporated," Parekh says.
The regulators, on their part, are open to implementing the recommendations that relate to procedures. Sebi Chairman U K Sinha has said the regulations are being made in a transparent and consultative manner. It is expected the RBI would examine its own services for the public and institute time-bound response guidelines where feasible by this month. Irda, too, has set up a panel to advise the regulator on customer services. It will work on simplifying the terminology in policies to ensure there are no unfair terms in financial contracts.
