Annual Report - Banking Codes and Standards …

1 Annual Report 2016-17. Banking Codes AND Standards . BOARD OF INDIA. PUBLISHED BY. Anand Aras Chief Executive Officer Banking Codes and Standards Board of India C-7, 4th Floor, Reserve Bank of India Building Bandra Kurla Complex Mumbai- 400051. Banking Codes and Standards Board of India Governing Council Chairman A C Mahajan Members C Krishnan Rama Bijapurkar Shubhalakshmi Panse Uday Phadke Anand Aras Chief Executive Officer Banking Codes and Standards Board of India Banking Codes and Standards Board of India Annual Report 2016-17. Banking Codes AND Standards BOARD OF INDIA. Annual Report of the activities of BCSBI during the year 2016 - 17. Governing Council The present Governing Council was last reconstituted by RBI with effect from December 14, 2014 for a period of three years ending on December 13, 2017. During the year 2016- 17, Shri Nalin M Shah retired from the Governing Council on February 12, 2017 after completion of his tenure and was replaced by Shri Uday Phadke with effect from February 14, 2017.

2 BCSBI places on record the invaluable services rendered by Shri Nalin M Shah. The Governing Council which is vested with the powers of general superintendence, direction and control of the affairs and funds of BCSBI, held nine meetings during the year 2016-17. Several new ideas with regard to Code Monitoring Studies, Identification of Thrust Areas and drawing up of Annual Action Plan etc were discussed in the meetings and requisite resolutions passed. Membership During the year under review, two scheduled commercial banks (viz. Bandhan Bank Ltd and IDFC Bank Ltd) have been enrolled as members of BCSBI. However, one Member viz. Commonwealth Bank of Australia closed their Indian operations from and sought cancellation of its membership. With these two additions and one deletion the total number of members stood at 135 as on March 31, 2017. During the year several Small Finance Banks and Payment Banks have evinced interest in becoming members of BCSBI. They have been advised of the procedural requirements for becoming members.

3 BCSBI will continue its efforts to enlist eligible banks as members so that all bank customers benefit from the provisions of both the Bank's commitment to Customers and the MSE Codes . During the year under review, an amount of lakh was collected from members towards their Annual membership fees. There were no arrears of membership fees. Names of member banks as on March 31, 2017 are listed in Annex I. Monitoring of Code Implementation and visits to bank branches to assess implementation of the Codes BCSBI, apart from its main task of preparing and periodically reviewing of Codes for customer service in banks also looks into the aspect of ongoing monitoring of implementation of the Codes by the member banks. BCSBI has been monitoring the implementation of Code provisions by examining Annual Statement of Compliance (ASC) which itself is a self- certified statement submitted by banks covering status of implementation of some of the important provisions of the Codes . In addition to this, BCSBI has also adopted a system of conducting visits to select bank branches / processing centres to verify the position regarding ground level implementation of the Code of Bank's Commitment to Customers and the Code of Bank's Commitment to Micro and Small Enterprises (MSE) as a tool for on-site monitoring.

4 Such visits to branches for verification are confined to a sample of branches selected at random and are undertaken by authorized representatives of BCSBI, 1. Banking Codes and Standards Board of India Annual Report 2016-17. who record their observations in a structured questionnaire on important Code provisions. During such visits, BCSBI representatives also interact with a few customers of the bank branches and obtain their feedback. In the year 2016-17, BCSBI has carried out visits to a representative sample of 2733. branches of 51 select member banks at 87 centres including 20% branches from rural and semi-urban areas. The BCSBI representatives have also obtained feedback from 8485. customers during such visits. During this round of branch visits five select scheduled Urban Cooperative Banks were included for the first time. BCSBI Code Compliance Rating-2017: The outputs of branch visits and responses of customers were utilized as inputs for rating of banks on Code compliance.

5 BCSBI has engaged the services of CRISIL for developing the Rating methodology and framework. CRISIL analyses the data provided by BCSBI. within the laid down framework and assesses the Code compliance of banks by grouping the parameters covered in Branch Visit findings and Customer feedback into five main categories viz: Information dissemination (ID), Transparency (TR), Customer centricity (CC), Grievance redressal (GR) and Customer feedback (CF), and allocating them numerical weightages to arrive at a score out of 100. The aspects relating to complaints received by Banking Ombudsmen have been factored into Grievance redressal segment of above mentioned rating framework. Based on the overall score achieved by a bank, a rating described as BCSBI Code Compliance Rating-2017 was awarded from out of four categories, viz., High', Above Average', Average' and Below Average' depicting the corresponding level of Code compliance of the bank. The scoring scale and overall position of rating of 46 banks, excluding five select scheduled Urban Cooperative Banks being included for the first time, in current round vis a- vis their position in 2014-15 is given in the following table: Scoring Scale Grade /Category Number of Banks and percentage 2014-15 2016-17.

6 85 and above High 13 28% 12 26%. 70 to less than 85 Above Average 23 50% 24 52%. 60 to less than 70 Average 10 22% 10 22%. Below 60 Below Average 0 0 0 0. Total 46 100% 46 100%. The above table reveals a relatively unchanged position with the number of banks in each grade remaining more or less same. However, the same may be viewed in the background of the fact that, the bar for current rating exercise has been raised by a) rearticulating the parameters for verification, b) addition of some more aspects based on the principles laid down in the model Customer Rights Policy adopted by banks, c) increased emphasis given to complaints received by Banking Ombudsman (under the category of Grievance 2. Banking Codes and Standards Board of India Annual Report 2016-17. Redressal) and d) added focus and weightages for Customer Centricity and Customer Feedback. Thus, under the circumstances, it is noteworthy that 15 banks have improved their scores of which 5 have improved their rating category while 10 remained in the same band of their previous rating category.

7 The five Scheduled Urban Co-operative banks, selected for the survey for the first time, have all been rated in the Above Average' category. This is not captured in the above table for want of historical data. Code of Bank's Commitment to Customers The Code of Bank's Commitment to Customers was first introduced in the year 2006 and revised in 2009 and 2014. The Code sets minimum Standards of Banking practices when dealing with individual customers. The code contains obligations of banks towards the customers in their day to day Banking operations. A fresh review of the Code is proposed in the next financial year and suggestions / views have been sought from Member Banks, Indian Banks Association, Reserve Bank of India and other stakeholders like consumer organisations and members of the public. The revised code will additionally focus on Customer's Charter of Rights. Considering the technological enhancement in the payment and settlements systems and emergence of new modes of payments and settlements, and the shift to digitization, additional coverage on App-based Banking is proposed.

8 Code Monitoring Studies BCSBI undertook certain studies around select themes relating to Code provisions and also certain other important customer service related areas. During the year 2016-17, BCSBI. conducted the following studies: (i) Study of cheque clearing process under Cheque Truncation System with reference to compliance with the relevant Code provisions A study of 13 banks comprising 8 from Public Sector and 5 from Private Sector on CTS Cheque Clearing System was carried out in the first quarter of 2016-17. The specific aspects covered during the study were as under: - Availability of facility to hand over cheques at counter against acknowledgement even though Cheque drop box facility is available at branches. Relevant display at appropriate places (Branch premises and on drop box). - Display of cut-off time for lodging instruments and information about when customers can withdraw money. - Timely communication with reasons about returned unpaid cheques/instruments - Timely return of the unpaid / dishonoured cheques - Timely re-presentation of technical return cheques and levy of charges for such returns - Compensating customers in the case of delay in collection of cheque irrespective of demand by the customer.

9 3. Banking Codes and Standards Board of India Annual Report 2016-17. The Study Report was examined by Governing Council of BCSBI in its meeting held on September2, 2016 which approved the recommendations made in the Report regarding best practices/systems adopted by banks in this regard. Accordingly, the same were shared with all the public sector, private sector and foreign member banks for implementation, if not already done at their end. (ii) A study of select banks on centralized implementation of BCSBI Codes through efficient flows and use of technology covering Retail and MSE Loans A study of 21 select banks on the centralized implementation of Codes with use of technology covering Retail and MSE Loans was carried out in the third quarter of 2016- 17. The specific aspect covered during the study was to determine the operational efficiency at various stages of the loan life cycle from receipt of application, process flow, communication and sanction process, closure and servicing, post disbursal, for both Retail and MSE Loans.

10 The objective was to identify the best practices followed by different banks and share the same with other member banks for their consideration and implementation. It was observed that most of the banks are i) using internal software for tracking applications and also various stages of the appraisal process. ii) extensively using SMS / email for communicating to customers of the various changes on terms and conditions or interest rate changes. iii) using technology and email / sms facility to manage the disbursal and post disbursal process iv) extensively using technology for communicating with the customers with regard to implementation of the Codes . The GC advised that letters be sent to the banks concerned regarding deficiencies pointed out in the study. Accordingly, attention of the PCCOs of the banks was invited to the following major areas for improvement: Acknowledging receipt of loan applications and indicating the period within which the customer can expect disposal of the loan application, Making available a list of documents to be provided along with the application and the Most Important Terms and Conditions of the loan on bank's website and Simplification of the operational workflow for small ticket MSE loans, etc.