‘Banks must follow MFIs, step up lending to SMEs’

BCSBI chairperson KJ Udeshi is concerned that banks are not lending as much as they should

    DESPITE several measures initiated by RBI to improve banking services offered to the common man, clients are not too pleased with their bankers. KJ Udeshi, chairperson of Banking Codes and Standards Board of India (BCSBI) — an independent watchdog set up by RBI to ensure that banks evolve comprehensive codes and standards for fair treatment of their customers — tells Sangita Mehta that simply getting more regulatory powers won't help solve problems that customers face with their banks. Rather, she says, banks ought to step up lending to SMEs. Ms Udeshi has the distinction of being the first woman deputy governor of RBI, prior to her current assignment.

Do you think if BCSBI was given more teeth, you could be more effective in pursuing its goals?
Regulation should remain with RBI. You cannot and must not have a second regulator. We must remember that regulation has been extant for over three decades and yet customer service is not so good. So it is not regulation that brings about good customer service. RBI continues to regulate while we (BCSBI) are the ones who go and monitor banks through statements, incognito visits, field surveys... We point out faults to banks, try and get them to rectify the same and check if systems are in place. So, just giving us regulatory powers won't solve issues. I am not for it.
Where do you think some more work needs to be done by banks and where can BCSBI play a more proactive role?
Banks need to work on lending to micro and small enterprises. But, first of all, lending itself isn't taking place. Our code comes into play only when an SME becomes a customer. However, banks don't view this segment as customers. So, you have a Catch 22 situation. How do you protect those who want to become customers, but are not customers as yet.
    I appreciate banks not lending because they are not sure whether their money will be repaid. But a bank's work is not only based on trust. It has to conduct market surveys, but nowadays banks just don't want to do that. If microfinance institutions can do it, why can't our banks? This is what bothers me. And microfinance companies don't lend cheap. Our banks don't want go and find out the worth of their customer. Secondly, after lending, they don't want to do a follow-up.
Customers have been complaining that even though they have taken floating interest rate home loans, they have not got the benefit of a lower interest rate regime, as have new borrowers...
It is necessary to see under what scheme new customers have received the loan. If a new customer is given a floating rate of interest at 8%, it is essential to know to what that rate of interest is linked with. A bank cannot link the new customer's interest rate to a base rate that is different from the old customer. However, a floating rate for all customers has to be the same, because the base rate is the same. So I would say there cannot be a difference between new and existing rates. But I can comment on this only when I see the scheme in totality. However, when interest rates fall, the benefit has to be passed on to all the customer. They have every right to claim compensation in the event their rights are violated.
What have you found out when making surprise checks on banks?
Recently, we made an incognito visit in a metro to check out the procedure for opening a basic banking account, or commonly a no-frills accounts. And we found out what we already knew — that banks were most reluctant to open no-frills accounts. It is amazing because banks have been given sufficient freedom from know your customer (KYC) norms to open no-frills accounts. What disappoints is that bankers not only don't open accounts, they don' even offer to suggest the documents needed for a customer to open one. RBI has given sufficient leeway to banks to ask for any documents that would satisfy them. Leave aside documents, the central bank says if a client can get another customer of that bank to introduce him to the bank, that would suffice. Banks look at maintaining such accounts as a cost burden.
There are many such instance where banks are providing services only out of compulsion and not out of spirit. Your comment.
I don't know of many such cases, only of a solitary instance where a new private bank was just not willing to issue passbooks to their customers. But, in general ,when it comes to code provisions, all banks are compliant.
It has been three years since the board was set up. How satisfied are you with its progress?
To be satisfied, you have to be satisfied within given parameters, and our parameters are that we will achieve progress only through co-operation and collaboration. Now, that is an uphill task. Given that it is an uphill task, I am satisfied that we are making progress. But it will be equally difficult, going forward. And without regulatory powers, what are the actions that we can take? We can name and shame, issue sanctions and deprive banks of membership. In respect of name and shame, we can make things public, but public memory is short. Our objective is to see to it that banks really change. This takes time.
    Another handicap is that we look at systems in a bank. One customer's complaint may be redressed, but another may feel dissatisfied with the bank's response. Redressals should be for one and all. Putting a redressal mechanism in place takes time. It is a tough task.
    sangita.mehta@timesgroup.com