Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao on Thursday flagged that banks are focusing more on innovative customer acquisition methods and less on enhancing customer grievance redress mechanisms. Rao said this phenomenon seems peculiar for a sector which prides itself on being a service industry
He was speaking at the annual FICCI-IBA banking conference.
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Rao said: “While banks are hugely invested in forging new and innovative ways of customer acquisition, very little seems to be going on improving the customer grievance redress mechanisms. To me, this seems very odd for a sector which prides itself on being a service industry.”
Emphasising on the need to fortify cyber security and prevention of cyber frauds, the deputy governor said that there are increased cases of frauds and data breaches among customers, and the efforts of the banks to provide timely solutions to customer grievances have not kept pace with the explosion in technology and products.
“The banking landscape is evolving with increase in financial inclusion, customer access, product choices, and convenience. However, the risks to the consumer have also increased. There are increasing instances of frauds and data breaches,” Rao said in his speech at the conference.
The deputy governor also said that an excessive exposure to risk within banks and financial institutions can lead to catastrophic outcomes if not effectively managed.
“There are obvious incentives for taking risks. An overdose of risk in a leveraged entity like a bank or a finance company can be disastrous if not managed efficiently,” he said.
Addressing the dynamic shifts in the banking system, he highlighted the necessity for banks to move away from their traditional sector-focused strategies.
“With (the) banking-as-a-service model making steady and silent inroads, the banks have to operate as part of the larger ecosystem with (a) good number and varieties of non-bank players in the mix,” he said.
He said that there are five elements for a robust and resilient financial system: strong governance and management, sound regulatory principles, adequate capital and liquidity, strong supervisory and risk management practices, and effective crisis management and resolution frameworks.
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Rao added that technology-induced frauds, such as deceptive apps, privacy breaches, and the emergence of deepfakes have become prevalent. He said that digital evolution has given rise to a new form of mis-selling known as ‘Dark Patterns’.
“Customer today are facing threat from technology induced frauds such as fraudulent apps, breach of privacy and deepfakes. Even mis-selling has emerged in a digital avatar now – called Dark Patterns,” he said.
“It has been said several times that we need banking, but not banks. This prophecy is yet to become true. I am certain that banks will continue to be the primary drivers of India’s growth story, but the trajectory that the banks would adopt during this transition will determine how the banking landscape will look in the next decade,” he said.
Rao concluded by saying that the innovations and collaborations need to be well thought out, risks properly analysed, and mitigation plans put in place before offering them to customers.