Time Runs Out For Grace, New Iba Code On Cards

Time has caught up with GRACE. The Ground Rules and Code of Ethics (GRACE) evolved by the Indian Banks Association (IBA) in 1977 to introduce a system of self-discipline in the banking system, will be replaced by a revised version.

GRACE has served its mission in a regulated environment for more than twenty years, but is now beginning to outlive its utility in the current liberalised banking environment, a senior banking industry official said.

IBA has already prepared a new draft code of ethics and is in the process of finalising it after discussions with member banks, said the official adding that the move is in response to changing times. Such an code was first formulated in 1973, prior to GRACE, when the IBA had recommended a ceiling rate of interest on the inter-bank borrowings in call market.

 

The code was modified four years later into GRACE, which also was subject to revisions according to the needs of the times. The IBA code is a voluntary non-statutory code bit is endorsed by the Reserve Bank.

However, banks are expected to follow the code in letter and spirit. And a committee set up by the IBA will be empowered to investigate and follow up cases of violation of the code.

The new code is divided into three parts. The first deals with customer service wherein the code specifies that banks must explicitly inform customers about their rights.

The second part concerns exclusively with redressal of grievances while the last part lays out the ground rules to promote healthy competition.

While in a regulated environment the IBA had specified a ceiling rate of interest in the call market, the new rules do not make an attempt to rein in interest rates. They are limited to broad guidelines like banks should not lure customers with gifts and prizes, that banks should not promote speculative ventures such as chit funds etc. The rules also state that a savings account cannot be opened for institutions and lists out the institutions concerned.

The objective of the code is to promote good banking system, enhance transparency, foster customer confidence and inculcate self-discipline.