CHAPTER VI EXTENSION AND RETENTION OF CUSTOMERS THROUGH BANKING SERVICES. -Economic Landscape Un-banked Unbankable Population

Transcription

1 CHAPTER VI EXTENSION AND RETENTION OF CUSTOMERS THROUGH BANKING SERVICES 6.1 Introduction 6.2 Global Financial Inclusion 6.3 Penetration of Indian Banking Services 6.4 The Extent of Financial Exclusion in India -Economic Landscape Urban India Rural India Un-banked Unbankable Population Under Banked Bankable Population 6.5 Financial Inclusion in India Accessibility of Banking Services Opening of One Bank Account per family Region wise Inaccessibility of Banking Services 6.6 Financial Inclusion Plan in India Progress of Financial Inclusion Plan in India Newly Opened Branches 6.7 Retention of Customers through Redressal Mechanism 6.8 Banking Ombudsman Scheme in Banks (BOS) Customer Services through Banking Ombudsman Scheme in Banks Profile of Customer Complaints at OBOs: Number of Complaints

2 6.8.4 Region wise Receipt of Complaints Category of Complaints Mode-wise Receipt of Complaints Bank Group-wise Classification of Complaints Rejected complaints 6.9 Conclusion

3 CHAPTER VI EXTENSION AND RETENTION OF CUSTOMERS THROUGH BANKING SERVICES 6.1 Introduction ot dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is a part of it. We are not doing him a favour by serving him. He is doing us a favour by giving us an opportunity to Mahatma Gandhi. The least that every visitor to a branch bea customer or a casual visitor and foremost, every customer shall be extended all due courtesies, whether or not the bank is in a position to meet his need/s. Every customer who comes in shall be greeted in an appropriate manner with a smile and made to feel comfortable. All forms of non-face-to-face communication with the customer including telephonic calls and shall also be courteous. This basic minimum entitlement of every customer shall be unfailingly ensured by every staff member during his/her interactions with customers.customers desire the banks to be customer centric in all their dealings with the customers. To ensure a fair treatment from the banks, every bank should have a transparent policy outlining the fair treatment to customers in the various dealings in addition to compliance with the provisions of mandatory RBI Guidelines, Circulars and the voluntary BCSBI Code to which the banks have subscribed. Any deficiency in implementation must undergo systemic correction

4 under the directive of RBI.The aspect of customer service is embedded in all the banking transactions and the feedback received by the Committee from various stakeholders was pertaining to various subjects covering the entire spectrum of banking. The approach of banks to customer service is a matter of close public scrutiny these days. It is, therefore, important that every approach to customer care or related aspects must be judiciously weighed for its pros and cons. This chapter visualizes the various measures taken by the banks to extend the customer services by rievances are adhered. 6.2 Global Financial Inclusion Financial Inclusion at global level is a huge task not only for developing or under developed countries but also for the developed countries. At global level, Financial Inclusion is a multidimensional achieve financial inclusion varies depending upon the requirement of particular country. Although financial development and economy growth are closely related many of the developed countries financial systems have not achieved all inclusive growth where a section of population remain outside the formal financial system. To address this issue a conceptual framework is being developed on the actions taken by some of the countries all over the globe as far as reach and usage of financial system to all sections of the population is concerned.-age billion adults 2.2 billion of whom live in Africa, Asia, Latin America, and the Middle East.

5 With the advent of the process of liberalisation in the early nineties, the challenges of being financial service providers in a globalised, competitive environment. This posed a dual challenge for the banking industry. The first challenge was to manage the growing needs of their existing customer segments and business locations for better and more efficient services, and the second was, how to expand the reach of their services and business beyond the traditional services and locations, which had large socio-economic implications because large parts of the population did not have access to even basic banking services. At this juncture, banks in India were looking at huge potential in business growth as well as several constraints, such as inadequacy of infrastructure and human resources, geographical, topographical and distance limitations, communication inefficiencies, cost implications and delivery, as well as the processing capability to manage more business information and larger accounts. Increased use of information technology emerged as the key to meeting these challenges. Several measures were mooted at the level of the Government, the Reserve Bank and industry, which provided an impetus to the adoption of technology in the banking sector. CBS implementation has made customer account maintenance seamless and enhanced data storage and retrieval capabilities tremendously. It has also enhanc has increased information availability and the capacity for analysis and communication manifold. Such capabilities and efficiencies are poised to rise further with the advent and adoption of evolving technologies like cloud computing and virtualisation, which have the potential to significantly bring down financial and management costs.

6 Table 6.1 Indicators of Global Financial Inclusion Country Number of Number of Bank loan as Bank deposits branches (per ATMs (per.1 percent of as percent of.1 million million GDP GDP adults) adults) India Australia Brazil France Mexico United States Korea Philippines Source: Financial Access Survey, IMF. It is noted from the above table that Brazil ranks first in the number of bank branches, Australia ranks first in the other banking operations like more number of ATMs, bank loan and in bank deposits. Comparatively, India is placed in a low position in the number of branches, number of ATMs but better placed in the case of granting loans and accepting deposits. Philippineshas low performance in the banking operations in the global level. Table 6.2 Key Statistics on Financial Inclusion in India (%) Particulars India World Share with an account at a formal financial institution All adults Poorest income quintile 21 38

7 Women Adults saving in the past year Adults originating a new loan in the past year Using a formal account Using a community-based method 3 5 From a formal financial institution 8 9 From family or friends Adults with a credit card 2 15 Adults with an outstanding mortgage 2 7 Adults paying personally for health insurance 7 17 Adults using mobile money in the past year 4 7 Source: Policy Research Working paper, World Bank. Globally, the adults having a bank account is 35 percent in India when compared to 50 percent in the world level. Women in India having a bank account are 26 percent and the same is 47 percent in the world level. The number of adults with a credit card and Adults with an outstanding mortgage were much less in India when compared to world level. 6.4 The Extent of Financial Exclusion in India For the Government of India, inclusive growth has always been a priority. The agenda of inclusive growth is reflected in the kind of policies and regulations that the policymaking and regulating institutions, like Government of India, RBI, IRDA, PFRDA (for micro- pensions), have been developing over the past decade. The banking sector has taken a lead role in promoting financial inclusion. There has been a multi-fold increase in the number of bank branches, especially in rural areas; the branch network was around 8,000 in 1969 and now it is more than 89,000, spread across the length and breadth of the country.however, these initiatives for

8 strengthening financial inclusion are yet to have a substantial impact on the lives of the excluded population. Over half the Indian population is unbanked. Only about 55 percent of the population in the country has deposit account and around 9 percent have credit accounts with banks. According to data from Reserve Bank of India (RBI), India is the home to largest number of unbanked families (more than 145 million). There is only one bank branch per 14,000 people. The total number of villages in the country is estimated to be around 6 lakhs, but the number of Scheduled Commercial Banks (SCBs) and Regional Rural Banks (RRBs) stand at only 33,495.A recent directive from Reserve Bank of India has acknowledged the need of stepping up opening of branches in rural areas so as to improve banking penetration and financial inclusion. Banks have been advised as part of risk management to adopt ICT solutions including biometric identification of the customer. The domestic Scheduled Commercial Banks (SCBs) have been directed to allocate at least 25 percent of the total number of branches to be opened during a year to unbanked rural centres (Tier 5 & Tier 6 centres). When it comes to insurance, we have financial exclusion on an even larger scale. Less than 20 percent of the population has any kind of life insurance Economic Landscape In the Index of Financial Inclusion (IFI) prepared by the Indian Council for Research on International Economic Relations (ICRIER), India has been placed 50th position in the list of 100 countries. The Index of Financial Inclusion, which measures the availability and usage of banking services, is based on indicators like the number of bank accounts per 1,000 adults, number of ATMs and bank branches per million people and the amount of bank credits and deposits. While economic growth in India

9 has benefited a growing middle class, it has also created great disparities between urban and rural areas, prosperous and lagging states, and between skilled and lowskilled workers. Poverty is fuelled by a lack of access to social benefits, productive assets and financial resources. High levels of illiteracy, inadequate healthcare and extremely limited access to social services only aggravate the situation. About three- live in poverty in rural areas and are mainly dependent on agriculture. Indeed, agriculture employs a full 65 percent of marginal farmers, unable to access financial loans to grow their businesses, have been forced to get loans from local agents at extremely high interest rates of above 40 percent per annum. Agriculture employs large sections of the populace that is semiskilled and semi-literate and at times unskilled and illiterate. Rural, semi-urban and urban slums have a similar nature of human resources available. Financial Inclusion has emerged as a tool for the socio-economic development of the society. The basket of financial services under Financial Inclusion will create an opportunity to capture the underserved market fulfilling corporate social responsibility thereby driving the economic growth of the country Urban India tion lives in towns and cities and g-thirds of GDP. Migration from rural to urban India stands at 30 percent. In India, a quarter of the urban population lives in slums. In Mumbai, that figure rises to half of its 13.6 million people. It is not surprising that the highest concentrations of un-banked

10 migrant unskilled labour forms the biggest fraction of the urban slum population. Poor infrastructure, absence of financial network for urban poor, absence of credit rating and financial history and absence of financial knowledge deprives slum-dwellers of formal sources of credit Rural India About 70 percent of the population (770 million people) lives in villages, a fraction lower as compared to the post-independence (in 1947) figure of 75 percent. The vast majority of this group a full 65 percent of the population is employed in agriculture. For financial inclusion policy makers, this fact emphasizes the importance of financial facilities being made available to the unorganized primary sector, particularly agriculture and agro-based industries. Non-farm dependent on unskilled activities, including landless labour, construction workers and farm product processing workers, are also underserved by formal sources of finance from formal sources of finance Un-banked Unbankable Population Two- day. This section of underserved population needs social improvement and attention to basic needs such as health, education and housing amongst others through government grants. Social and economic development can be brought about by creating opportunities such as employment for the unskilled masses, developing work

11 socially and economically stable, financial literacy, formal sources of microfinance and appropriate delivery channels can aid inclusive economic growth Under banked Bankable Population The section of Indian society just above the poverty line (living on between US$1.25 and US$2.00 a day) also requires social development and strong government support. But this group, reckoned to number 370 million, is in a better position to benefit from economic stability and improve their socio-economic condition. Access to products such as no-frills accounts, micro-insurance, government benefits, microcredits, crop loans and microfinance for micro-enterprises encourage better management of funds and provide opportunities for financial stability and growth. 6.5 Financial Inclusion in India Habitations in the country have a commercial bank branch: 30,000 (out of 6,00,000) Population having Bank account (savings) : 57% Life insurance: : 10% Non- life insurance : 0.6% Debit Cards : 13% Credit Cards : 2% Source: Reserve Bank of India

12 6.5.1 Accessibility of Banking Services Modern economies depend upon efficient allocation and optimal utilisation of savings and credit. Banks, Insurance companies and Financial Institutions (FIs) play a pivotal role in undertaking this function and ensuring that high economic growth is sustained. In India, these institutions have facilitated the growth in the economy and have displayed remarkable resilience in the post financial crisis period. In the recent past, though the Indian economy has slowed down, Financing, Insurance, Real Estate and Business Services continue to record impressive growth of over 9 per cent. To improve the functioning of various FIs, the Department of Financial Services (DFS) has taken several initiatives and many more on the anvil. These include steps aimed to achieve effective financial inclusion, improve flow of agriculture credit and lending to minorities and for education, payments and receipts through electronic mode, infrastructure financing, debt recovery, timely settlement of insurance claims, customer grievance redressal, pension reforms etc. Financial services influence all sections of the society and sectors of the economy. Timely, affordable and adequate credit for agriculture and loans for the micro, small and medium enterprises, housing, is to foster a well regulated and orderly growth of the banking, insurance and pension sectors. Over the years, financial services have assumed a key role in the progress of our economy towards a modern economy. Readily available cost effective technology has made it feasible to deliver these services to large sections of underprivileged sections of our country. The Department of Financial services (DFS) strives to achieve this goal by providing policy support to the Banks, Insurance Companies and Developmental Financial Institutions.

13 6.5.2 Opening of one bank account per family The first step in FI is the interface between a bank customer and a bank. In India, conventionally this interface has been through a normal brick and mortar bank branch. Since banking is essentially a commercial business there are limits to which such bank branches can be spread out in different areas to cover the entire population. To open bank branches in all habitations of 5,000 or more population in under banked districts, and 10,000 or more population in other districts RBI has provided for a Branch Authorization Policy under which SCBs are permitted to open branches in rural, semi urban and urban areas, in North Eastern States & Sikkim and in Tier 2 to Tier 6 centres (population upto 99,999) in rest of the country, without having to take permission, subject to reporting. Opening of a bank account is one of the key requirements in FI. The country has made appreciable progress on this parameter during as per Census data on Households (HHs) Availing Banking Services. Table 6.3 Number of Households Availing Banking Services Number of households availing banking services Total number of households Category Total 68,230, ,814, ,963, ,692,667 Rural 41,639,949 91,369, ,271, ,826,730 Urban 26,599,693 53,444,983 53,692,376 78,865, Incremental % of change Change Total Rural Urban Source: Census of India.

14 In 2001, slightly more than 35% of the total number of HHs availed banking services. In rural areas, less than one in three HHs and in urban areas, one in two HHs availed banking services, 11 yearsago. In 2011, the position has improved considerably with nearly 3 out of every 5 HHs in Indiaavailing banking services. In rural areas more than one in two and in urban areas more than 2 out ofevery 3 HHs availed banking services. During , the no. of HHs availing banking services overall has increased by 112 percent or a CAGR of 7.8 percent per annum. In rural areas they have increased by 8.2 percent p.a and in urban areas by 7.2 percent p.a. our endeavour to ensure that all households benefit from bank accounts in the next 2 s been decided to take up this task on a campaign basis. Accordingly, banks have geared up their branches and it is expected that most of the families shall have a bank account by the end of this year. Table 6.4 Access to Banking: Major States of India States % Rank Himachal Pradesh Uttrakhand Kerala Utter Pradesh Jammu and Kashmir Maharashtra Rajasthan Punjab Karnataka

15 All India Gujarat Jharkhand Andhra Pradesh Tamil Nadu Chattisgarh West Bengal Madhya Pradesh Odisha Bihar Assam Source: Census of India, Himachal Pradesh ranks first in reaching the people through banking services (89.1%) which is followed by Uttrakhand (80.7%), Kerala (74.2%), Utter Pradesh (72.0%), Jammu and Kashmir (68.9%), Maharashtra (68.1%), Rajasthan (68.0%), Punjab (65.2%), Karnataka (61.1%), Gujarat (57.9%), Jharkhand (54%), Andhra Pradesh (53.1%), Tamil Nadu (52.5%), Chattisgarh (48.8%),West Bengal (48.5%), Madhya Pradesh (46.6%), Odisha (45%), Bihar (44.5%) and Assam (44.1%). At all India level banking accessibility has reached a level of 58.7 percent Region wise Inaccessibility of Banking Services The region-wise data regarding the farm house holds not having access to formal credit is given in the table. The unbanked population is higher in the North Eastern and Eastern Regions as compared to other regions. Further, the extent of credit inclusion is even lower at 14 per cent of adult population. The financially

16 excluded sections largely comprise marginal farmers, landless labourers, selfemployed and unorganized sector enterprises, ethnic minorities, socially excluded groups, senior citizens and women. While there are pockets of largely excluded population in all parts of the country, the North-East, Eastern and Central region contain most of the financially excluded population. Table 6.5 Percentage of Farm House Holds not having access to Formal Credit Region % to total farm households North-Eastern Union Territories Eastern Central Northern Southern Western Average Source: Reserve Bank of India. The Farm households not accessing credit from formal sources as proportion to total farm households is especially high at percent, percent and 77.59percent in the North-Eastern, Eastern and Central Regions. The Southern and Western Regions, on the other hand, exhibit relatively better level of access to formal/non-formal sources when comparing with the All India level of 72.7percent. This is mainly on account of spread of banking habits and a more robust infrastructure.

17 6.6 Financial Inclusion Plan in India With an estimated 40 percent of Indians living in urban areas by the year 2030, the need is to ensure a steady economic and social escalation for these people the Indian p dependent on moneylenders.in the last seven years, the Reserve Bank of India (RBI) has been taking note of this gap and recently has constituted a high level committee chaired by its Deputy Governor financial inclusion in the country. Following the RBI instructions, many formal banks have also started schemes for financial services to unbanked people and there are claims that situation is not as worse as it is said.easy access to public goods and services, especially banking services, is the need of the hour for India. In India, the focus of the financial inclusion at present is confined to ensuring a bare minimum access to a savings bank account without frills. The Reserve Bank of India has been talking about widening financial inclusion as one of the objectives in granting licences to new private sector banks which is being mulled. There is also a correlation between social development levels and financial inclusion. The RBI recently came up with a state-wise index of Financial Inclusion and the results were rather surprising. Table 6.6 Index of Financial Inclusion of Various States States Rank IFI Score Population GDP Per Capita (Rs) Kerala ,403,000 39,815 Maharashtra ,645,000 43,475 Karnataka ,013,000 32,411

18 Tamil Nadu ,161,000 34,417 Punjab ,475,000 38,859 Andhra Pradesh ,227,000 31,697 Himachal Pradesh ,751,000 40,515 Sikkim ,000 29,506 Haryana ,163,000 48,456 West Bengal ,948,000 27,062 Gujarat ,500,000 40,004 Uttar Pradesh ,455,000 15,055 Meghalaya ,601,000 25,349 Tripura ,588,000 24,034 Orissa ,512,000 22,287 Rajasthan ,121,000 22,350 Arunachal Pradesh ,231,000 25,110 Mizoram ,000 24,337 Madhya Pradesh ,439,000 16,963 Bihar ,847,000 11,416 Assam ,317,000 18,877 Nagaland ,232,000 18,490 Manipur ,430,000 18,347 Source: World Bank Database for Findex While Kerala topped the index, followed closely by Maharashtra, Gujarat lagged far behind. In this survey, RBI considered three basic dimensions of an inclusive financial system, banking penetration, availability of the banking services

19 and the usage of the banking system. The main reasons for selecting these dimensions are data availability and recent development in the literature. In the group of 23 states for which a 3-dimensional IFI (Index of Financial Inclusion) has been estimated by using data on three dimensions of financial inclusion, Kerala leads with the highest value of IFI followed by Maharashtra and Karnataka. In fact, all-india average IFI also falls under this category. All other states have low IFI values, ranging between 0.0 and 0.3. The state of Tamilnadu has been placed in the fourth place, serving a population of 67,161,000 with an estimated index of Financial Inclusion of 0.48 out of the 23 states Progress of Financial Inclusion Plan in India Nearly 2, 68, 000 banking outlets have been set up in villages as on March 13 as against 67,694 banking outlets in villages in March 2010 About 7400 rural branches have been opened during this period Nearly 109 million Basic Savings Bank Deposit Accounts (BSBDAs) have been added, taking the total no. of BSBDAs to 182 million. Share of ICT based accounts have increased substantially Percentage of ICT accounts to total BSBDAs has increased from 25% in March 10 to 45 percent in March 13 With the addition of nearly 9.48 million farm sector households during this period, 33.8 million households have been provided with small entrepreneurial credit as at the end of March With the addition of nearly 2.25 million non-farm sector households during this period, 3.6 million households have been provided with small entrepreneurial credit as at the end of March 2013.

20 About 4904 lakh transactions have been carried out in ICT based accounts through BCs during the three year period. The first three-year Financial Inclusion Plan of banks for the period has ended. Although there has been reasonable progress in the penetration of banking services and opening of basic bank accounts, the number of transactions through ICT-based BC outlets is still very low. To continue the process of ensuring access to banking services to the excluded, banks have been advised to draw up a 3- year FIP for the period Banks have now been advised that their FIPs should be disaggregated to the branch level. The disaggregation of the plans is being done to ensure the involvement of all stakeholders in the financial inclusion efforts. The table below provides a set of summary statistics relating to the penetration of various categories of financial products. First, the relatively low penetration of bank branches must be highlighted only 30,000 out of 6, 00,000 habitations have a banking presence. Table 6.7 Progress of Indian Financial Inclusion Plan Particulars Progress % Banking Outlets in Villages Branches Banking Outlets in Villages BCs Banking Outlets in Villages - Other Modes Banking Outlets in Villages Total Urban Locations Covered through BCs 33,378 34,811 37,471 40,837 7, ,174 80,802 1,41,136 2,21,341 1,87, ,146 6,276 6, ,694 1,16,208 1,81,753 2,68,454 2,00, ,771 5,891 27,143 26,

21 Basic Savings Bank Deposit A/c through Branches (No. in millions) Basic Savings Bank Deposit A/c through Branches (Amt. in` billions) Basic Savings Bank Deposit A/c through BCs (No. in millions) Basic Savings Bank Deposit A/c through BCs (Amt. in `billions) BSBDA Total (in millions) BSBDA Total (Amt. in ` billions) OD Facility Availed in Basic Savings Bank Deposit A/c (No. in millions) OD Facility Availed in Basic Savings Bank Deposit A/c (Amt. in ` billions) KCCs - (No. in millions) KCCs - (Amt. in ` billions) GCCs - (No. in millions) ,240. 1, , , ,

22 GCCs - (Amt in ` billions) ICT A/Cs-BC- Transaction - No. in millions ICT A/Cs-BC- Transactions - Amt. in ` billions Source: Reserve Bank of India. The percentage of change over the years from is more and highly notable in case of Urban Locations covered through BCs (5972%) which is followed by Banking Outlets in Villages - Other Modes (4320%), ICT A/Cs-BC- Transactions (3280%), OD facility availed in Basic Savings Bank Deposit A/c (2094%) and OD facility availed in Basic Savings Bank Deposit A/c (1450%). The change is not being much apparent in case of Basic Savings Bank Deposit A/c through BCs (70%), Basic Savings Bank Deposit A/c through branches (67%), Kisan Credit Cards (39%) and Banking Outlets in Villages in the form of branches (20%). Hence, it is inferred that more concentration can be had in introducing more branches in villages and also in issuing more kisan credit cards to the farmers at large. Table 6.8 Progress of SCBs in Financial Inclusion Plan (excluding RRBs) Particulars Growth % No. of BCs/BC Agents deployed 33,042 57,329 95,767 62, Number of banking outlets in villages with population above 2,000 Number of banking outlets in villages with population less than 2,000 27,353 54,246 82,300 54, ,905 45,937 65,234 38,

23 Total number of banking outlets in villages Of which 54,258 1,00,183 1,47,534 93, a) Through branches 21,475 22,662 24,701 3, b) Through BCs 32,684 77,138 1,20,355 87, c) Through Other Modes ,478 2, Urban Locations covered through BCs No-Frill accounts 433 3,757 5,875 5, Number (millions) Amount (` billions) Overdraft availed in No - Frill Accounts Number (millions) Amount (` billions) Kisan Credit Card (KCC) Number of Accounts ( millions) Outstanding amount (` billions) General Purpose Credit Card (GCC) Number of Accounts (millions) Outstanding amount (` billions) ICT Based Accounts through BCs Number of Accounts (millions) Number of transactions during the year (millions) Source: RBI Annual Report

24 In reaching the target of financial inclusion, the role of Business Correspondents is highly appreciable as their contribution is notable right from opening the branches and the extension of banking operations through new bank accounts. ICT based accounts through BCs are also high in the case ofnumber of transactions during the year. Financial inclusion through the issue of Kisan Credit Cards is slackening to a certain extent. But the general performance is good as far as the financial inclusion measures in India are concerned. Table 6.9 State-wise FIP Progress Name of State Total No. of Villages Allotted No. of Villages Covered % of Coverage No. of Villages yet to be Covered Total No. of BCs Appointed Total No. of FI Accounts Opened % Rank India 74,398 74, ,468 31,637, Andaman & Nicobar Islands Andhra Pradesh 6,640 6, ,262 2,985, Arunachal Pradesh , Assam 2,319 2, , Bihar 9,213 9, ,097 2,944, Chandigarh Chhattisgarh 1,050 1, , Dadra & Nagar Haveli ,

25 Daman & Diu , Delhi , Goa , Gujarat 3,502 3, , , Haryana 1,838 1, , , Himachal Pradesh Jammu & Kashmir , , Jharkhand 1,541 1, ,487 1,554, Karnataka 3,395 3, ,035 1,704, Kerala , Lakshadweep Madhya Pradesh 2,736 2, ,439 1,355, Maharashtra 4,292 4, ,988 2,212, Manipur , Meghalaya , Mizoram , Nagaland , Orissa 1,877 1, , , Puducherry , Punjab 1,576 1, , , Rajasthan 3,883 3, ,779 1,078,

26 Sikkim , Tamil Nadu 4,445 4, ,051 1,888, Tripura , Uttar Pradesh 16,270 16, ,452 7,849, Uttarakhand , West Bengal 7,486 7, ,108 3,046, Source: SLBC Conveners, Ministry of Finance. In view of the progress of Financial Inclusion of India, Uttar Pradesh ranks first which is followed by West Bengal, Andhra Pradesh, Bihar and Maharashtra. Tamil Nadu is placed in the sixth rank in the coverage of villages through financial inclusion. The states Mizoram, Goa, Daman & Diu and Andaman & Nicobar Islands show lower performance in the coverage of villages through financial inclusion. Table 6.10 Zonal wise Financial Inclusion Progress Region No. of Villages Allotted No. of Villages Covered % of Coverage Villages yet to be Covered No. of BCs Appointed No. of FI Accounts Opened % Northern Zone 20,863 20, ,479 9,539, North Eastern 3,227 3, ,279 1,233,597 4 Zone Eastern Zone 20,117 19, ,430 8,159, Central Zone 3,786 3, ,241 1,597,075 5 Western Zone 11,754 11, ,544 4,332, Southern Zone 14,651 14, ,495 6,775, Total 74,398 74, ,468 31,637, Source: SLBC Conveners, Ministry of Finance

27 With regards to the zonal wise financial inclusion progress, almost all the zones have excelled well in the coverage of villages. Number of business correspondents appointed are more in the case of Northern Zone and Eastern Zone. In the case of number of financial inclusion accounts opened, Northern Zone ranks first, which is followed by Eastern Zone, Southern Zone and Western Zone. The North Eastern Zone and Central Zone are lagging behind in the case of opening up new accounts. Table6.11 Areawise Percentage of Households Availing Banking Services in India, 2011 State India (%) Rural (%) Urban (%) India Andhra Pradesh Assam Bihar Chandigarh Chhattisgarh Dadra & Nagar Haveli Daman & Diu Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir

28 Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Delhi Odisha Puducherry Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal Source: Census 2011, Registrar General of India. In India, on an average, 50.9 percent of the people avail banking services wherein, 49.2 percent belong to the rural area and 55.9 percent belong to the urban area. Individually, the state of Himachal Pradesh ranks higher with 85.6 percent accessibility to bank operations which consist of 85.9 percent rural and 83.4 percent

29 urban. The states like Tripura, Uttarakhand, Sikkim, Meghalaya, Jammu & Kashmir and Chandigarh have recorded high percentage of branch penetration into both urban and rural areas Newly Opened Branches At present, all domestic scheduled commercial banks are allowed to open branches in tier 3 to tier 6 cities, with population up to 49,999, without RBI's approval and subject to reporting to the central bank. However, in tier 1 and 2, with population above 50,000, these need RBI's permission to open a new branch. The only exceptions are north-eastern states and Sikkim, where the permission extends to all cities.while giving approvals, the RBI generally ensures that at least one third of branches opened in tier 3 to tier 6 cities, are in under-banked districts. It also assesses the bank's participation in financial inclusion and priority sector lending.now that the banks will be required to open 25 percent branches in unbanked areas, it will not be compulsory to follow the mandate of one third branches of tier 3-6 cities to be in under-banked regions. Now to get the permission to open branches in tier 1 and tier 2 cities, the RBI will see the commercial bank's proposal to open 25percent of total branches in unbanked regions.the RBI has also decided on a scheme of incentives for the commercial banks. Over and above the 25percent mandate, they are supposed to follow, for every extra branch they propose to open in under-banked regions in underbanked states, they will receive approval for an extra branch in tier 1 city. Table 6.12 Tier wise Break up of Newly Opened Bank Branches Tier Average % Tier

30 Tier Tier Tier Tier Tier Total Source: Annual Reports, RBI. Tier 1 city refers to the city in which the population is 1, 00,000 and above, Tier 2-50,000 to 99,999, Tier 3-20,000 to 49,999, Tier 4-10,000 to 19,999, Tier 5-5,000 to 9,999 and Tier 6 - Less than During the last three years, there was a rise in the number of newly opened branches in Tier 5 and 6 centres. In , of the total newly opened branches, around 41 per cent were opened in these two centres taken together. These two centres together refer to centres having a population of less Of the total number of newly opened branches in , 25 per cent were opened in unbanked centres; the remaining 75 per cent were opened in centres that were already banked. However, it is noteworthy that the proportion of branches opened in unbanked centres has witnessed a consistent increase in recent years. This rise could be seen across all regions in the country. As per the data from the year 2010 to 2013, the average branches opened in Tier 1 city is 29 percent, Tier 6 city is 21 percent, Tier 3 city is 17 percent, Tier 5 city is 13 percent and Tier 2 city is 9 percent. 6.7 Retention of Customers through Redressal Mechanism The importance of customer service for capturing business in banks has become a focal point in all stages of marketing of banking services to achieve the

31 targets. Almost all the banks offer more or less the same products with little changes in nomenclature. Hence, the concept of enhancing customer satisfaction is a pivotal point to attract more and more people to transact at a particular bank. Nowadays, customers are becoming more and more demanding thus forcing the bankers to evolve new strategies as well as new and innovative products to keep pace with the growing customer expectation. With the opening up of the economy, customer satisfaction has acquired new meaning and different dimensions. Moreover, the customer preferences are changing at a rapid pace and their demands are turning insatiable,.in order to cater to the changing preferences and to survive in the midst of intense competition, bankers are bound to provide suitable services as per the customer needs. Simultaneously, customers are not ready to accept delay in service charges delivery and are in need of information for taking instant decisions. Therefore, providing customer satisfaction has become more important than mere delivery of service charges. 6.8 Banking Ombudsman Scheme in Banks (BOS) Banking Ombudsman Banking Ombudsman Scheme 2006, and the authority was created pursuant to the decision by the Government of India to enable resolution of complaints of customers of banks, relating to certain services rendered by the banks. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995 and was revised in The current scheme became operative from 1st January 2006, and replaced and superseded the banking Ombudsman Scheme 2002.In India, banks need to constantly focus on and work around the challenges of up scaling financial inclusion initiatives in the form of

32 extending opportunities of cost effective banking to the under privileged and low income groups that has the potential for being a catalyst for augmenting growth prospects in terms of enhancing bank savings and financial deepening. This is ironical as Governments and financial businesses benefit if consumers have confidence in financial markets. Like the courts, the Banking Ombudsmen resolve individual disputes. Unlike the courts, they can also deal with consumer enquiries and feedback the lessons from their work to help governments, regulators, banks and consumers to improve things for the future. The Banking Ombudsmen help to support improvements and reduce disputes, help banks themselves to resolve disputes with consumers, resolve any consumer disputes that banks fail to resolve themselves and reduce the burden on the courts. Internationally, it is becoming increasingly evident that both consumers and service providers find it easier to resolve disputes through Ombudsmen than through the courts Customer Services through Banking Ombudsman Scheme in Banks Customer service is the most cliched phrase at banks and the proof lies in the recent report released by the central bank which lays bare the inadequacies. And the firebrand Reserve Bank of India Deputy Governor KC Chakrabarty, a former career banker himself, is throwing his weight behind addressing many of those. The global banking industry, with possibly the best of the brains, has been at the receiving end for putting its interests ahead of customers. In India, issues like one-sided loan agreements and hefty fees one has to pay to close a bank account are precisely the reasons why a regulator should play a significant role in the way lenders price their product. Many recommendations of the Damodaran Committee on improving customer service have been implemented, but there's a long way to go if one goes by

33 the annual report of the Banking Ombudsman. Chakrabarty at least wants to ensure "that poor do not subsidise the provision of banking services to the rich." Next time when your bank reports a steep jump in profits driven by fee income, you may have to question the charges you pay. In the present scenario of competitive banking, excellence in customer service is the most important tool for sustained business growth. Customer complaints are part of the business life of any corporate entity. This is more so for the Bank because Banks are service organizations. As a service organization, customer service and customer satisfaction should be the prime concern of any bank. The bank believes that providing prompt and efficient service is essential not only to attract new customers, but also to retain existing ones. This policy document aims at minimizing instances of customer complaints and grievances through proper service delivery and review mechanism and to ensure prompt redressal of customer complaints and grievances. The review mechanism should help in identifying shortcomings in product features and service delivery. Customer dissatisfaction would spoil bank's name and image. Rising share of Tier II cities in total complaints about SCBs, indicates the growing awareness among customers regarding the ombudsman scheme of redressal mechanism. The Banking Ombudsman offices in Tier I cities (New Delhi, Mumbai, Chennai, Kolkata, Bengaluru and Hyderabad) account for more than half the total complaints received by all 15 offices. However, the increasing share of complaints received by Banking Ombudsman offices in Tier II cities in recent period suggests the growing awareness about this grievance redressal mechanism among customers from smaller towns.

34 Table 6.13 Region-wise Complaints Received at Banking Ombudsman Offices BO office Percentage Number of Complaints Variation % to total complaints Ahmedabad ,590 4, Bengaluru ,486 3, Bhopal ,953 4, Bhubaneswar ,826 1, Chandigarh ,521 3, Chennai ,614 7, Guwahati Hyderabad ,167 4, Jaipur ,209 4, Kanpur ,633 9, Kolkata ,838 4, Mumbai ,905 8, New Delhi ,180 9, Patna ,718 2, Thiruvananthapuram ,541 2, Total ,889 70, Source: The Banking Ombudsman Scheme 2006, Annual Report, OBO New Delhi, Kanpur, Mumbai & Chennai were the four OBOs which received more than five thousand complaints against banks. These four OBOs accounted for almost 50 percent of the complaints received by all OBOs. OBO Ahmadabad, Chennai, Guwahati, Mumbai, New Delhi and Patna recorded increase in

35 complaints received whereas OBO Bangalore, Bhopal, Bhubaneswar, Chandigarh, Hyderabad, Jaipur, Kanpur, Kolkata and Thiruvananthapuram recorded a decline in receipt of complaints over the previous year. On an average, each OBO received 4702 complaints during the year. Kanpur received maximum numbers of complaints from banking customers, followed by New Delhi, Mumbai and Chennai.Customer service is likely to have improved in cities like Chennai, which is reflected in the number of complaints received. It has almost halved in the past 3 years. Mumbai and Kolkata have seen a significant drop in number of complaints in the past 3 years.the least number of complaints were received from Bhubaneshwar and Guwahati. This could be on account of fewer branches. Metros registered 39 per cent complaints while rural India 11 per cent. Table 6.14 BO Office wise Position of Complaints Disposed OBO Received Pending Pending Rate of during at the Handled Disposed at the Disposal the beginning end (%) Year Ahmedabad Bangalore Bhopal Bhubaneswar Chandigarh Chennai Guwahati Hyderabad Jaipur

36 Kanpur Kolkata Mumbai New Delhi Patna Thiruvananthapuram Total Source: The Banking Ombudsman Scheme 2006, Annual Report, The disposal rate of the complaints registered during the year through Banking Ombudsman Scheme has recorded an average disposal rate of 93 percent. Individually, the OBOs which have recorded a high achievement are Ahmedabad (99%), Jaipur (97%), Bangalore and Patna (97%), Bhubaneswar (96%), Bhopal and Thiruvananthapuram (95%), Mumbai (93%), Kanpur (92%) and Chennai and Kolkata (91%). The disposal performance is comparatively low in Hyderabad (88%), Chandigarh and New Delhi (88%) Profile of Customer Complaints at OBOs: The 15 OBOs receive and consider complaints from customers relating to the deficiencies in banking services in respect to their territorial jurisdiction. The OBOs at Bhubaneswar, Guwahati, Patna and Thiruvananthapuram continued to have low volume of complaints. There are no specific reasons that can be attributed to the sudden rise or fall in the number of complaints at a given OBO. The awareness campaigns being conducted by the BOs need to be fine-tuned to sensitize the banks and customers about their respective roles and responsibilities. With increased emphasis being placed on opening of more bank branches in the unbanked / under-

37 banked pockets of the country, there is a need for banks and OBOs to ensure that adequate physical and institutional arrangements are in place to take proper care of the new customers joining the mainstream banking channels. Table 6.15 Receipt of Complaints Year Brought Forward Received Handled Trend % Disposed Trend % % of disposal Trend % Average r Source: Compiled from the Banking Ombudsman Scheme 2006, Annual Reports. Receipts of complaints refer to the complaints brought forward from the last year and the complaints received during the current year. The number of complaints handled refers to the number of complaints which were taken for action. The number of complaints disposed refers to the complaints which were settled. In all the cases the number of complaints gets increased over the years. The trend growth rates gave a 57 percent increase for the number of complaints handled, 71 percent increase for the number of complaints disposed and 8 percent increase for the number of complaints disposed of on an average. The degree of correlation is moderate and positive for the

38 receipt of complaints to the tune of 0.76, complaints handled 0.71 and the same is 0.74 for the disposal of complaints. Table 6.16 Complaints Pending End of Months Year the % year < 1 % 1-2 % 2-3 % >3 % Average r Source: Compiled from the Banking Ombudsman Scheme 2006, Annual Reports. This table gives a description of the complaints pending in the Banking Ombudsman Offices. On an average, out of the total complaints received, 9.19 percent have been brought forward from the last year, 8027 percent were pending for less than a month, 5.85 percent were pending for a period from one month to two months, 3.89 percent were pending for a period from two to three months and 5.69 percent were pending for a period of more than three months. The correlation analysis shows a little positive relationship of 0.07 for the complaints pending for less than a month and negative correlation is reported for the rest of the periods of pending viz -