Customer first: Banks must focus on customer service across the system

In his remarks on Monday at the annual conference of the Reserve Bank of India (RBI) ombudsmen, Governor Sanjay Malhotra rightly highlighted the need for regulated entities, such as banks and non-banking financial companies, to improve customer service.  The number of complaints under the RBI’s Integrated Ombudsman Scheme increased at a compound annual rate of about 50 per cent over the past two years ended 2023-24, while the number of complaints processed by the RBI ombudsmen increased by about 25 per cent, leaving a significant backlog.  Further, as Mr Malhotra highlighted, in 2023-24, 95 scheduled commercial banks received over 10 million complaints from their customers. In this context, he suggested that senior bank officials dedicate time every week to address issues. He also suggested improving systems to reduce grievances. However, setting better grievance-redress mechanisms is also important.

 

Basic banking service is a necessity in today’s day and age. Given that India has seen a significant adoption of digital payments, the quality of service in the banking and financial sector has become extremely important. The RBI governor rightly noted in this age of competition, it would be difficult to survive without providing adequate service to customers. In recent years, banks have, in fact, struggled to mobilise deposits and bankers have opined that they need to offer better products and services to customers. While it’s in the interests of banks and financial institutions to provide better service, it doesn’t seem to be happening at the level desired. It is worth noting that the situation could be worse than the numbers suggest. It is reasonable to assume that a large number of bank customers from relatively disadvantaged income groups may not even be filing complaints because of limited awareness of processes. Notably, over 70 per cent of complaints received by the RBI ombudsman in 2023-24 emanated from urban and metropolitan areas.

 

While addressing customer complaints must be a priority for banks and other financial institutions, it is also important to simplify processes to enable a smooth experience for banking customers. In this context, both banks and the regulator would need to work together. However, part of the problem could also be the unavailability of banking staff to address customers’ needs.  According to the available data, the number of bank clerks in public-sector banks (PSBs) declined by over 150,000 between 2013 and 2024. So did the number of their employees. Although the share of PSBs in complaints received by the RBI ombudsman in 2023-24 came down, it was still the highest. While PSBs are commercial entities and must be allowed to improve operational efficiency, it is important to make sure customers don’t suffer.

 

Although private banks have been aggressively increasing their workforce in recent years and expanding their share of banking assets, they also need to do more to address customer concerns. In the context of overall operations, another important aspect is worth highlighting here. As the Union government informed Parliament this week, over 40 per cent of director-level positions in PSBs are vacant. The government must make the necessary appointments without delay. Such large vacancies at the broad level, which are hard to justify, can affect the overall performance of banks, including customer service. However, PSBs alone are not at fault, the entire system needs improvement to provide satisfactory banking service to all Indians.