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PMC Bank crisis: Should you change your bank? Here's how to evaluate

The PMC Bank crisis has brought safety of bank deposits into focus, but does that fear warrant a bank change?

, ET Bureau|
Updated: Nov 18, 2019, 04.04 PM IST
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In case of failed ATM withdrawals or fund transfers, too, banks have to adhere to RBI rules.
The Punjab and Maharashtra Co-operative (PMC) Bank crisis, which has left lakhs of depositors unable to access their lifetime’s savings, has alarmed customers of other banks as well. An ET Wealth survey has revealed how much the confidence of banking customers has taken a beating.

But there is reassuring news as well. A large majority (65.5%) of the 1,359 respondents who participated in the survey are largely satisfied with their banks. However, it can’t be ignored that over a third of those polled are dissatisfied with their banks’ services. The reasons for discontent are several, with poor customer service topping the list. Banks also have a poor record while resolving customer grievances, with 67% of unhappy respondents rating their bank’s responsiveness to their complaints as ‘poor’.

The PMC Bank effect
Repercussions of the PMC Bank scandal is something banks have found difficult to shake off. The majority of respondents (over 71%) who are dissatisfied with their banks say their confidence in their banks was affected due to the crisis. This is not surprising given that restrictions on withdrawals from PMC Bank sparked panic in September, and the RBI had to step in to reassure customers of all banks. “There are rumours about certain banks, including cooperative banks, resulting in anxiety among depositors. RBI would like to assure the general public that the Indian banking system is safe and there is no need to panic on the basis of such rumours,” the RBI had said in a statement in October.

On their part, customers need to know facts. Deposits of up to Rs 1 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation. This is the maximum cover a depositor can hope for, even if he holds accounts across multiple branches. In the aftermath of the PMC Bank scam, there has been a growing clamour for an increase in this limit, which could fructify in future.

“In the past, bigger banks have taken over troubled ones. RBI has the power to protect depositors by drawing a scheme of amalgamation with another bank if it is feasible. Once the weak bank is merged, the depositor’s money is safe and they can continue banking as before,” says V.N. Kulkarni, a former banker and financial counsellor. Examples include Bank of Rajasthan’s acquisition by ICICI Bank in 2010 and earlier, Oriental Bank of Commerce’s takeover of Global Trust Bank in 2004.

Besides, there are steps that you can take to safeguard your interest. The key is to diversify your investments across bank deposits, mutual funds, post office small savings instruments and so on to make your portfolio resilient. Even within bank deposits, look at spreading out the risks. “Not only should you avoid banking with just one bank, but also deposit your money in different combinations. For example, you can open joint accounts, where you are the first accountholder in one and your spouse takes on the role in the second,” advises Kulkarni.

PSU banks fail faith test
While government backing insulates them from crises, there is no dearth of grievances against public sector banks. Over 44% of respondents, who are PSU bank customers, said they were dissatisfied with their bank. “Uncaring staff is often the most common grievance. Many branch officials lack knowledge of rules and seldom look up the rule book in case of doubts. Their online facilities are also sub-par,” explains consumer activist Jehangir Gai. In 2017, the Banking Codes and Standards Board of India’s (BCSBI) graded banks on their compliance with the voluntary code of commitment to customers, and only one PSU bank received a ‘High’ rating. Of the 12 with the highest ratings, eight were private and three were foreign banks.

65% of respondents say they are happy with their banks...
...But one out of every eight respondents are extremely unhappy with the services of their banks.
satisfaction-with-bank

Dismal grievance redress is an issue
67% of unhappy respondents rate bank’s response to complaints as poor.
Complaints

The PMC Bank crisis has shaken confidence
Already dissatisfied customers rattled further by incident.
PMC-Bank-crisis-effect

PSU banks fail to keep customers happy
These banks account for largest share of dissatisfied customers.
unhappy-customers


Customer not king
Despite stiff competition from new-age and small finance banks as well as digital payment companies, customer service in banks leaves a lot to be desired. Poor customer service (70%) remains the chief complaint of respondents unhappy with their banks. Other complaints include rude behaviour of bank staff, misleading financial advice, high minimum balance requirements and lack of good online facilities. “PSU bank customers suffer due to the unhelpful attitude of staff, while most complaints on mis-selling come from private and foreign bank customers as the pressure to sell third-party products is higher,” says Gai.

Scourge that is misselling
Close to 72% of respondents who said their bank officials have given investment advice are dissatisfied with the quality of advice received. Also, 39% of dissatisfied customers have listed ‘misleading advice from banks’ as their grievance. Mis-selling of financial products, particularly insurance policies, remains a menace. Mis-selling complaints —introduced as a separate category recently —make up a mere 0.5% of total grievances received by banking ombudsman offices as per its report for 2017-18. However, it is likely that most are still filed under non-adherence to fair practices code and BCSBI code, which cover sale of unsuitable products.

This is a key area of concern. “The Right of Suitability clearly states that banks will ‘offer products as per customer needs’.

Private and foreign banks score poorly on investment advice
Close to 72% of respondents who received investment advice from banks are dissatisfied with quality of advice.
investment-advice

Rude staff a major cause of dissatisfaction
Ill-informed officials add to woes of customers, especially in PSU banks.
rude-staff

Lack of confidence reason to shift banks
Jolted by PMC Bank crisis, many customers of other banks looking to switch.
Lack-of-confidence

Banks slow in transmitting RBI rate cuts
Non transmission of policy action rankles customers.
Transmission-of-RBI-cuts

Any violation should be reported to the banking ombudsman,” says Anand Aras, CEO, BCSBI. According to the Insurance Regulatory and Development Authority of India (Irdai), unfair business practices, primarily mis-selling, accounted for 35% of complaints received in 2017-18. “Most life insurance-related complaints we get are to do with mis-selling. Often, a regular premium policy is sold as a single premium one. The insured realises only when he or she gets a renewal reminder,” says Milind Kharat, Insurance Ombudsman, Mumbai. Some bank intermediaries even try to pass off Ulips as mutual fund schemes.

Getting investors to redeem mutual fund investments made through other intermediaries and invest through them is another tactic. They could also get you to invest in riskier asset classes, without taking your risk profile or age into account. If you find yourself in a similar situation, approach the banking or the insurance ombudsman offices. However, your first port of call ought to be the bank. Only if it fails to respond within 30 days or the response is not satisfactory should you proceed further. You can also knock on the doors of consumer courts directly.

More importantly, do not blindly sign on blank forms on your intermediary’s insistence, even if he happens to be a bank official. Do your research to ascertain the suitability of the products being recommended before committing your money. If you are a senior citizen, focus on safety and steady returns instead of giving into temptation of high returns. You can allocate a small portion of your portfolio to such products if you have the risk appetite.

Towards greener pastures
Over 85% of respondents jolted by the PMC Bank crisis have either switched or are looking to switch banks. If you are one of them, ensure that you choose your new bank carefully. Clearly, the bank’s financial resilience will be on top of most customers’ minds while taking this call. However, it needs to meet a few other parameters. Efficient online facilities is a key parameter, given that interaction with branches has reduced drastically over the years and the trend is likely to strengthen further. Your bank should also maintain complete transparency when it comes to service charges. Look for a bank that offers a wider suite of products for savings and investment.

Switch to save
Not transmitting the banking regulator’s policy action that is favourable to customers is another grouse that rankles customers. Nearly 66% of dissatisfied respondents in the ET Wealth survey pointed to their banks’ unwillingness to pass on the policy rate change benefits promptly. Over 43% of these respondents say their banks were quick to cut deposit rates after an RBI policy rate cut, but not lending rates.

Another 23% faulted their banks for hiking lending rates promptly but not deposit rates. Now, thanks to the repolinked lending rate mechanism for new retail floating rate loans that has come into force from 1 October, discontent over lack of transmission is likely to be addressed. Since these loans are linked to repo rates, the changes will reflect immediately or within the reset period of three months.

Home loan borrowers whose loans continue to be linked to Base Rate or MCLR should look at moving to repolinked schemes even if it means paying an initial administration charge.

Frauds and glitches
While online frauds have been making headlines of late, our study found that a little over 18% have been victims of such scams. A relatively higher number (33%) said they had experienced failed ATM transactions. The central bank has put in place detailed guidelines and timelines for reversal of such transactions.

Report frauds to your banks as soon you notice them in order to contain the damage. If you bring an unauthorised transaction to your bank’s notice within three working days, your liability will be nil. If you take between four to seven days, your loss will be the lower of the transaction value or Rs 25,000. In case of current or overdraft accounts and credit cards with limits of Rs 25 lakh and Rs 5 lakh respectively, the maximum liability is much lower at Rs 10,000. If you delay reporting beyond seven days, determining your liability will be at the bank’s discretion.

In case of failed ATM withdrawals or fund transfers, too, banks have to adhere to RBI rules. If your account is debited despite cash not being dispensed, banks have to proactively reverse such transactions in six days. In case of a delay, you are entitled to a compensation of Rs 100 per day of delay. Similar deadline and compensation structure apply to failed e-commerce transactions where payments are made through cards. The timeline for reversal is shorter at T+1 day for transfer through IMPS and UPI modes.

—With inputs from Ramanatha Pai

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