RBI plans to cap customer liability in online frauds

May 24 2016 12:24PM


Mumbai: The RBI is examining a proposal to cap customers' liability in the event of an online fraud. The central bank also plans to impose "severe" penalties on banks for mis-selling third-party products such as insurance.
These customer-friendly proposals were announced by RBI deputy governor S S Mundra while speaking at a conference organized by the Banking Codes and Standards Board of India (BCSBI). The body, promoted by the RBI, prescribes the minimum level of service that a bank promises. The codes are not regulations but more like assurances given by banks.

Speaking at the event, Mundra said that with the increase in online transactions, complaints regarding electronic banking have also risen. These pertain to unauthorized fund transfers and fraudulent withdrawals from ATMs using duplicate cards. He said that phishing emails to get personal information have also increased manifold.

Mundra indicated that banks could not wash their hands of completely saying that "customers have failed to exercise necessary safeguard or they have compromised their password". "When you introduce new channels, you should introduce new processes. It is incumbent upon the bank to educate the customer. The RBI is examining whether to issue regulatory direction with regard to reducing the liability of the customers on fraudulent transactions arising out of card and electronic banking transactions," he said.

"It is imperative to retain customers' confidence in these delivery channels. These channels are very meaningful for banks from the viewpoint of competition, reducing cost and improving customer base. But if customers don't get confidence in these channels, they may migrate to other banks or use traditional channels, which would mean higher operating costs for the banking system," said Mundra.

The deputy governor said that banks have been violating RBI guidelines on penalties for non-maintenance of minimum balance in savings bank accounts. "Despite our guidelines... we have been receiving certain complaints of such practices. It is in this context that we had to reiterate our instructions on stopping imposition of such charges leading to a negative balance in savings accounts. I insist that all banks must stop these practices forthwith, if not already done so," said Mundra.

Mundra also said that there is an increasingly large number of cases of mis-selling of third-party products to customers by banks, particularly insurance, and bundling-up third-party products in loans. "Cases of mis-selling are rampant. Often higher sales targets coupled with front-ended high commissions are the main motives for such mis-selling. There is no real oversight on unethical selling of third-party products," said Mundra. According to the deputy governor, the cardinal principle to be applied in determining whether there is mis-selling is the globally accepted rule of suitability.


"The Right to Suitability enshrined in our Charter of Customer Rights has been totally ignored or rather knowingly violated for the reasons best known to the banks. The RBI is seized of this issue and may be constrained to take strict actions, including imposition of heavy penalties, if the banking industry continues to follow such unethical and unacceptable practices of mis-selling of third party products."

Mundra said that adherence of banks to BCSBI's code was far from satisfactory and only 14% of banks have got a high rating. Mundra said the RBI was considering amendments to the scheme as in one third of the cases banks refused to admit a complaint. Mundra said this was an indication that customer-facing employees were not even aware of what was being promised by banks by subscribing to the BCSBI codes.

Source:-TOI

RBI plans to cap customer liability in online frauds

May 24 2016 11:11AM


Mumbai: The RBI is examining a proposal to cap customers' liability in the event of an online fraud. The central bank also plans to impose "severe" penalties on banks for mis-selling third-party products such as insurance.
These customer-friendly proposals were announced by RBI deputy governor S S Mundra while speaking at a conference organized by the Banking Codes and Standards Board of India (BCSBI). The body, promoted by the RBI, prescribes the minimum level of service that a bank promises. The codes are not regulations but more like assurances given by banks.

Speaking at the event, Mundra said that with the increase in online transactions, complaints regarding electronic banking have also risen. These pertain to unauthorized fund transfers and fraudulent withdrawals from ATMs using duplicate cards. He said that phishing emails to get personal information have also increased manifold.

Mundra indicated that banks could not wash their hands of completely saying that "customers have failed to exercise necessary safeguard or they have compromised their password". "When you introduce new channels, you should introduce new processes. It is incumbent upon the bank to educate the customer. The RBI is examining whether to issue regulatory direction with regard to reducing the liability of the customers on fraudulent transactions arising out of card and electronic banking transactions," he said.

"It is imperative to retain customers' confidence in these delivery channels. These channels are very meaningful for banks from the viewpoint of competition, reducing cost and improving customer base. But if customers don't get confidence in these channels, they may migrate to other banks or use traditional channels, which would mean higher operating costs for the banking system," said Mundra.

The deputy governor said that banks have been violating RBI guidelines on penalties for non-maintenance of minimum balance in savings bank accounts. "Despite our guidelines... we have been receiving certain complaints of such practices. It is in this context that we had to reiterate our instructions on stopping imposition of such charges leading to a negative balance in savings accounts. I insist that all banks must stop these practices forthwith, if not already done so," said Mundra.

Mundra also said that there is an increasingly large number of cases of mis-selling of third-party products to customers by banks, particularly insurance, and bundling-up third-party products in loans. "Cases of mis-selling are rampant. Often higher sales targets coupled with front-ended high commissions are the main motives for such mis-selling. There is no real oversight on unethical selling of third-party products," said Mundra. According to the deputy governor, the cardinal principle to be applied in determining whether there is mis-selling is the globally accepted rule of suitability.


"The Right to Suitability enshrined in our Charter of Customer Rights has been totally ignored or rather knowingly violated for the reasons best known to the banks. The RBI is seized of this issue and may be constrained to take strict actions, including imposition of heavy penalties, if the banking industry continues to follow such unethical and unacceptable practices of mis-selling of third party products."

Mundra said that adherence of banks to BCSBI's code was far from satisfactory and only 14% of banks have got a high rating. Mundra said the RBI was considering amendments to the scheme as in one third of the cases banks refused to admit a complaint. Mundra said this was an indication that customer-facing employees were not even aware of what was being promised by banks by subscribing to the BCSBI codes.

Source:-TOI

RBI plans to cap customer liability in online frauds

May 24 2016 12:23PM


Mumbai: The RBI is examining a proposal to cap customers' liability in the event of an online fraud. The central bank also plans to impose "severe" penalties on banks for mis-selling third-party products such as insurance.
These customer-friendly proposals were announced by RBI deputy governor S S Mundra while speaking at a conference organized by the Banking Codes and Standards Board of India (BCSBI). The body, promoted by the RBI, prescribes the minimum level of service that a bank promises. The codes are not regulations but more like assurances given by banks.

Speaking at the event, Mundra said that with the increase in online transactions, complaints regarding electronic banking have also risen. These pertain to unauthorized fund transfers and fraudulent withdrawals from ATMs using duplicate cards. He said that phishing emails to get personal information have also increased manifold.

Mundra indicated that banks could not wash their hands of completely saying that "customers have failed to exercise necessary safeguard or they have compromised their password". "When you introduce new channels, you should introduce new processes. It is incumbent upon the bank to educate the customer. The RBI is examining whether to issue regulatory direction with regard to reducing the liability of the customers on fraudulent transactions arising out of card and electronic banking transactions," he said.

"It is imperative to retain customers' confidence in these delivery channels. These channels are very meaningful for banks from the viewpoint of competition, reducing cost and improving customer base. But if customers don't get confidence in these channels, they may migrate to other banks or use traditional channels, which would mean higher operating costs for the banking system," said Mundra.

The deputy governor said that banks have been violating RBI guidelines on penalties for non-maintenance of minimum balance in savings bank accounts. "Despite our guidelines... we have been receiving certain complaints of such practices. It is in this context that we had to reiterate our instructions on stopping imposition of such charges leading to a negative balance in savings accounts. I insist that all banks must stop these practices forthwith, if not already done so," said Mundra.

Mundra also said that there is an increasingly large number of cases of mis-selling of third-party products to customers by banks, particularly insurance, and bundling-up third-party products in loans. "Cases of mis-selling are rampant. Often higher sales targets coupled with front-ended high commissions are the main motives for such mis-selling. There is no real oversight on unethical selling of third-party products," said Mundra. According to the deputy governor, the cardinal principle to be applied in determining whether there is mis-selling is the globally accepted rule of suitability.


"The Right to Suitability enshrined in our Charter of Customer Rights has been totally ignored or rather knowingly violated for the reasons best known to the banks. The RBI is seized of this issue and may be constrained to take strict actions, including imposition of heavy penalties, if the banking industry continues to follow such unethical and unacceptable practices of mis-selling of third party products."

Mundra said that adherence of banks to BCSBI's code was far from satisfactory and only 14% of banks have got a high rating. Mundra said the RBI was considering amendments to the scheme as in one third of the cases banks refused to admit a complaint. Mundra said this was an indication that customer-facing employees were not even aware of what was being promised by banks by subscribing to the BCSBI codes.

Source:-TOI

Write Your Valuable Opinion

Goverment Updates

Corporate Updates

IT Updates