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In the present banking system, excellence in customer service is the most important contrivance for sustained business growth. Customer complaints are part of the business living of any corporate entity. This is more so for banks since they are service organizations. Over a period of time, the number of complaints against banks with regard to deficiency of their services has been mounting in spite of several efforts taken by the banks on the advice of the Reserve Bank of India. Since the role of banks has changed from ‘Class Bank’ to ‘Mass Bank’, there is tremendous pressure on the part of banks to satisfy the various needs of the customers. The load of work is mounting day by day on banks taking into account The Banking Ombudsman (BO) Scheme was established by the Reserve Bank of India (RBI) in 1995 to provide speedy solutions to grievances faced by bank customers. Although the number of complaints received through this forum has augmented in recent times, the lack of awareness among the customers was a big concern. Through some proactive measures taken by the RBI and awareness campaigns conducted by the Ombudsman, the scenario looks much brighter today. In this backdrop, an attempt has been made to analyze the performance of Banking Ombudsman Scheme. Hence, the present study make & in-depth analysis about the trend & progress of Banking Ombudsman Scheme, especially for the Customers’ Redressal in India. The study is purely empirical in nature, depending on both primary and secondary data.
The institution of banking offers opportunity for investors and channelizes the resources available for the expansion and sustenance of trade,
commerce and industry, and, hence, an efficient banking system is indispensable forth growth of the national economy. It is necessary that in
such a system checks and balances be introduced to reduce inefficiency and administration. Furthermore, the quality of the service of the banks
depends upon the service provided to the customers and same determines the reputation and growth of the bank. Banking being public utility
services and in view of the declining services rendered to the public and also having regard to the fact that services so rendered by banks in
irresponsible manner, which are not only inefficient but deficient in character and in the said stress and strain, the public/customer is put
pillar to post without having any remedy, it was felt necessary to have a separate forum to receive and resolve such grievances. Of course, the
Consumer Protection Act, 1986 or courts, has taken care of it but as of now consumer forum is hard pressed with the alarming rise in number of
cases. In the banking sector, so far consumer or customer are concerned, their grievances are many and varied.
Reserve Bank of India (RBI) is flooded with complaints. They received complaint and forward the complaint to concerned bank and banks are required to submit comment and confirm that grievance of the customers stand redressed. Whether it is redressed or not, paper transactions take place. Banking sector is constantly under criticism by press, public and estimate committees. Various committees, commissions and working group were formed to go into the issue since 1972.
Banking Commission was headed by Sri R. G. Saraiya followed by Sri. R. K. Talwar which made as much as 172 recommendations and lastly report of the Goiporia Committee is a step further as to the sustained anxiety of RBI towards improvement of customer services in banks. Banks have implemented the recommendations to greater extent still there is no perceptible change in the quality of customer services and still the deficient areas are palpably visible and the customer remain dissatisfied.
The ‘Narasimham’ Committee on “Banking and Financial Sector Reforms” examined these critical areas and recommended introduction of the “Banking Ombudsman Scheme 1995” as a part of Financial Sector Policy and Systems Reforms 1991-92 to 1995-96. Recommendations are very much significant and certainly, it was a needed requirement. This is timely in the changing needs of the customers, in the context of growing liberalization in the banking and financial sectors along with the growing awareness amongst customers, of their rights. In this background RBI has accepted the recommendation and as a part of banking policy, Dr. C. Rangarajan; Governor, announced the “The Banking Ombudsman Scheme” on June 14, 1995. The scheme was issued under the provision of Banking Regulation Act, 1949, covers all Scheduled Commercial Banks and the Scheduled Primary Co-operative Banks having business in India. The Scheme has become operative from June 1995. Initially Ombudsman was appointed on full time basis in three centres i.e. Mumbai, New Delhi, and Bhopal but subsequently its base for operation has been expanded. The aim and objective mechanism of ombudsman is to deliver quick and inexpensive facility to resolve grievances of customers arising out of deficient services rendered by the banks. Hence, banking ombudsman is in place to cater to public complaints against deficiency in banking services concerning operation of deposit accounts and loans and advances.
The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995. The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services. As on date, fifteen Banking Ombudsmen have been appointed with their offices located mostly in state capitals. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.
The attempt over years has been to extend the scope and jurisdiction of the Banking ombudsman to hitherto uncovered areas. This has been done in two ways:1. Coverage of banks:
under the 1995 Scheme, only commercial banks and Scheduled Primary Co-operative Banks, having a place of business in India, were covered. Then 2002 Scheme broadened the operation of the ombudsman by including within the definition of ‘bank’ such entities as Regional Rural Banks, State Bank of India, and ‘subsidiary bank’ as defined in Part I of the Banking Regulation Act, 1949. Even the Scheduled Commercial banks are covered under the latest scheme of 2006.2. Entertainment of Complaints:
the Ombudsman Scheme lays down the grounds on which complaints can be entertained by the Ombudsman. The trend over the year has been to extend the jurisdiction of ombudsman. The RBI has expanded the scope of the banking ombudsman to include customer complaints relating to credit cards, deficiencies on the part of sales agents of banks to provide promised services, levying service charges without prior notice to the customer and non-adherence to the fair practices code as adopted by individual banks. In order to make the scheme more effective, the RBI has decided to take the onus of recruitment and funding of the scheme. It has also allowed complainants to file their complaints online and appeal to it against the judgments given by the banking ombudsman. The Banking Ombudsman Scheme, 1995 was notified by RBI on June 14, 1995 in terms of the powers conferred on the Bank by Section 35A of the Banking Regulation Act, 1949 (10 of 1949) to provide for a system of redressal of grievances against banks. The Scheme sought to establish a system of expeditious and inexpensive resolution of customer complaints. The Scheme which is in operation since 1995 has been revised during the year 2002 and 2006. The Scheme is being executed and administered by Banking Ombudsmen appointed by RBI at 15 centres covering the entire country.
The number of studies has been conducted regarding the services of banking ombudsman to their customers. Some of them are listed below:
In the light of the above literature review, the main objectives of the study are:
Data that has been collected from first-hand experience is called primary data. Primary data has not been published therefore it is more reliable authentic and objective. Primary data has not been altered or changed thus it has greater validity than secondary data. For the collection of Primary Data, I prepared a structured questionnaire in order to conduct my on-field research.
Secondary data on the BOS and its customer redressal has been taken from the various annual reports on Banking Ombudsman Scheme published by The Reserve Bank of India. Besides, secondary data has also been collected from different official and non-official sources like Books and Journals, Websites, etc.
In order to know how the Bank Customers are influenced by the Bank Ombudsman Scheme and to what extent, I have prepared a structured questionnaire (Shown in the Annexure).
The respondents to this questionnaire include Bank Customers belonging to all the age groups, categories, all the income groups and all clusters
of the society.
(i) No. of respondents : 75
Out of the 80 persons questioned there are 75 responses so the response rate is also high
There are no un-answered questions or answered wrong questions. When they had doubts regarding some questions I was there to answer.
For the Secondary data analysis, the Spreadsheet software MICROSOFT EXCEL 2010 has been used. The data has been represented in the most lucid and attractive way possible with the use of Bar Graphs and Pie Charts so that the viewer can have a clear idea about the results of the research
For the most specific primary data analysis, factor analysis has been done using the statistical package SPSS 21.
The above table shows that metro cities like Delhi, Mumbai, Chennai and Kanpur are having highest number of customers’ complaints towards banks, whereas in case of Kolkata, it is at a moderate level, although not very low. This is also evident from the following Chart:
The above table depicts that the total number of consumers’ complaints have increased from 69117 to 85131 during the last 7 financial years, which clearly indicates that with the increase in the retail banking business over the past few years, customers’ grievances have also increased. This is further supported by the following chart.
The above table depicts that the number of complaints received from the urban consumers is maximum during the last 7 financial years, followed by the consumers from the Metro Cities. This is also evident from the following chart.
The above table depicts that the number of complaints received through Post-Fax is maximum, followed by e-mails and online complaints during the last 7 financial years. This is also evident from the following chart.
The above table depicts that the number of complaints received from the individual customers is maximum, followed by individual-business customers and other’ proportion of complaints is very minimal during the last 7 financial years. This clearly indicates either the ignorance or awareness on the part of individual customers or the mis-behaviour or negligence on the part of banks with the increase in the retail banking business. This is also evident from the following chart.
The above table depicts that the number of complaints received from the Northern Zone is maximum, followed by southern and western zone, whereas the number of complaints received from the bank customers of Eastern Zone is minimal during the last 7 financial years. Further, there is a very high correlation between the complaints received during the last 2 financial years (shown below).
The above table depicts that the number of complaints received from the Nationalized Banks is maximum, followed by SBI & Associates and Others, whereas the number of complaints received from the Private Sector Banks, Foreign Banks and RRBs and Urban Cooperative Banks is minimal during the last 7 financial years. The main reason may be that the nationalized banks and SBI group of banks are having the highest customer-base and the same is increasing day-by-day. This is also shown through the following chart:
It is quite clear from the above table that although number of complaints received at the OBOs have increased during the last 7 financial years, but the total number of complaints handled by the OBOs is obviously more than that which shows the efficiency of the Bank Ombudsman Office and also the speed with which these complaints are handled and settled.
Any study, depending on primary data, must be backed up by a proper test of reliability and validity. The evaluation of questionnaire reliability- internal consistency is possible by Cronbach’s α (Cronbach, 1984), which is considered to be the most important reliability index and is based on the number of the variables/items of the questionnaire, as well as on the correlations between the variables (Nunnally, 1978). The reliability of the instrument means that its results are characterized by receptiveness’ (Psarou and Zafiropoulos, 2004) and these results are not connected with measurement errors (Zafiropoulos, 2005), was evaluated by Cronbach alpha coefficient. The index alpha (a) is the most important index of internal consistency and is attributed as the mean of correlations of all the variables, and it does not depend on their arrangement (Anastasiadou, 2006). So, we have conducted reliability test on standardised item and the Cronbach’s alpha based on standardised item found at .820 (shown in Table 8) which proved the reliability of the questionnaire and data. Similarly there was a very little variance of .018 between the inter-item correlations (shown in Table 9).
Further, for validity test, we have conducted Friedman test and Tukey test. In statistics, Tukey's test of additivity, named for John Tukey, is an approach used in two-way ANOVA (regression analysis involving two qualitative factors) to assess whether the factor variables are additively related to the expected value of the response variable. It can be applied when there are no replicated values in the data set, a situation in which it is impossible to directly estimate a fully general non-additive regression structure and still have information left to estimate the error variance. The test statistic proposed by Tukey has one degree of freedom under the null hypothesis, hence this is often called "Tukey's one-degree-of-freedom test." Tukey's test for nonadditivity was also found to be significant (shown in Table 11), signifying that there are no replicated values in the data set.
Then we have conducted Hotelling’s T-squared test for inter-class correlation coefficient which was also found to be significant. (shown in Table 12)
The Kolmogorov–Smirnov test can be modified to serve as a goodness of fit test. In the special case of testing for normality of the distribution, samples are standardized and compared with a standard normal distribution. This is equivalent to setting the mean and variance of the reference distribution equal to the sample estimates, and it is known that using these to define the specific reference distribution changes the null distribution of the test statistic: see below. Various studies have found that, even in this corrected form, the test is less powerful for testing normality than the Shapiro–Wilk test or Anderson–Darling test. The result of one-sample K-S Test was found to be .000, i.e., significant, implying that although convenience sampling was adopted as a method of sampling, but the dataset followed normal distribution.
Then the supposition test of sphericity was conducted by the Bartlett test (Ηο: All correlation coefficients are not quite far from zero) is rejected on a level of statistical significance p<0.0005 for Approx. Chi-Square=5152.448. (shown in Table 13)
We have also conducted the Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy and Bartlett’s test of sphericity. To define if the subscales were
suitable for factor analysis, two statistical tests were used. The first is the Bartlet Test of Sphericity, in which it is examined if the subscales
of the scale are inter-independent, and the latter is the criterion KMO (Kaiser-Meyer Olkin Measure of Sampling Adequacy, KMO) (Kaiser, 1974), which
examines sample sufficiency. The KMO measure of sampling adequacy results in .809 i.e. greater than .05 which was supported by the Bartlett’s test of
sphericity with 5671 degrees of freedom. The adequacy indicator of the sample ΚΜΟ=0.917>0.70 (shown in Table 13) indicated that the sample data are
suitable for the undergoing of factor analysis. The control of sphericity (Βartlett’s sign<0.001) proved that the principal component analysis has a
sense. Through this analysis, data grouping was based on the inter-correlation with the aim of imprinting those factors which describe completely and
with clarity the participants’ attitudes towards the research subject. Consequently, the coefficients are not all zero, so that the second acceptance
of factor analysis is satisfied. As a result, both acceptances for the conduct of factor analysis are satisfied and we can proceed to it.
Then a Principal components analysis with Varimax Rotation produces the dimension of differentiation was used in order to confirm or not the scale constructs validity. The main method of extracting factors is the analysis on main components with right-angled rotation of varimax type (Right-angled Rotation of Maximum Fluctuation), so that the variance between variable loads be maximized, on a specific factor, having as a final result little loads become less and big loads become bigger, and finally, those with in between values are minimized (Hair et al., 2005). The following factors were found from the factor analysis.
For factor analysis we have used Principal Component Analysis with 4 components consisting of 31 variables and also Varimax Rotation Method and finally they were extracted into 4 factors which explain near about 90% of the total variance. (Shown in Table 14 and 15)
From table 14, it is seen that 90% of the variance is explained by the factors. Further from table 15, we see that 31 variables relating to the consumers as an important component of Governance are conjoined into 4 factors:
Retail banking in India is not a new phenomenon. It has always been prevalent in India in various forms. For the last few years it has become synonymous with mainstream banking
for many banks. The typical products offered in the Indian retail banking segment are housing loans, consumption loans for purchase of durables, auto loans, credit cards and
educational loans. The loans are marketed under attractive brand names to differentiate the products offered by different banks. As the Report on Trend and Progress of India,
2003-04 has shown that the loan values of these retail lending typically range between Rs.20, 000 to Rs.100 lack. The loans are generally for duration of five to seven years
with housing loans granted for a longer duration of 15 years. Credit card is another rapidly growing sub-segment of this product group. In recent past retail lending has turned
out to be a key profit driver for banks with retail portfolio constituting 21.5 per cent of total outstanding advances as on March 2004. The overall impairment of the retail
loan portfolio worked out much less then the Gross NPA ratio for the entire loan portfolio. Within the retail segment, the housing loans had the least gross asset impairment.
In fact, retailing make ample business sense in the banking sector. While new generation private sector banks have been able to create a niche in this regard, the public sector
banks have not lagged behind. Leveraging their vast branch network and outreach, public sector banks have aggressively forayed to garner a larger slice of the retail pie. By
international standards, however, there is still much scope for retail banking in India. After all, retail loans constitute less than seven per cent of GDP in India vis-à-vis
about 35 per cent for other Asian economies — South Korea (55 per cent), Taiwan (52 per cent), Malaysia (33 per cent) and Thailand (18 per cent).
But the real Challenges of Retail Banking in India are the Retention of customers. According to a research by Reichheld and Sasser in the Harvard Business Review, 5 per cent increase in customer retention can increase profitability by 35 per cent in banking business, 50 per cent in insurance and brokerage, and 125 per cent in the consumer credit card market. Thus, banks need to emphasize retaining customers and increasing market share.
In this respect, The Ombudsman scheme is a godsend and a very important channel for redressal of grievances by the general public against banks and banking services. It is framed in such comportment that it does not oust the jurisdiction of other courts, and hence, distressed people do not hesitate in using the banking ombudsman as a primary forum for decree of disputes regarding banks. The trademark of the banking ombudsman probably is that it is in position to do justice in an individual case, in the sense it is not bound by the precedents and in certain circumstances, can ignore technicalities and legal rules of evidence while resolving disputes between aggrieved customer and the bank. Apart from above BO‟s offices have also started outreach activities for creating awareness among customers like interface with banks, organizing awareness camps, participation in exhibitions, responding to readers‟ queries in newspapers, broadcasting advertisements through AIR and Doordarshan and many others.
A lot can be achieved by thought better corporate governance in banking sector and education of the customer. It is the money of customer which banking sector should be acting as a trustee. If customer is aware of his/her rights then it can be better protected by being vigilant for its interests of safeguarding its money and better services. Strict actions taken on banks who default cab help in protecting consumer interest in better way. Education that can improve awareness of banking sector customer which should be like a movement will help safeguarding the interest of the biggest stakeholder i.e. customer of the bank.
The response of individual ombudsman schemes may include:
The response of the ombudsman community may include: