A Study on the Impact of Banking Ombudsman Scheme on Service Quality Provided by Banks

American Journal of Business, Economics and Management 2015; 3(6): 324-329 Published online October 22, 2015 (http://www.openscienceonline.com/journal/ajbem) A Study on the Impact of Banking Ombudsman Scheme on Service Quality Provided by Banks P. Malyadri 1, S. Sirisha 2 1 Government Degree College, Rayalaseema University, Kurnool, A. P. India 2 Institute for Technology and Management - Business School, Warangal, India Email address drpm16@gmail.com (P. Malyadri), sirisha@itm.edu (S. Sirisha) To cite this article P. Malyadri, S. Sirisha. A Study on the Impact of Banking Ombudsman Scheme on Service Quality Provided by Banks. American Journal of Business, Economics and Management. Vol. 3, No. 6, 2015, pp. 324-329. Abstract The banking system in India today has perhaps the largest outreach for delivery of financial services and is also serving as an important conduit for delivery of financial services. The Reserve Bank of India set up the Bank Ombudsman in year 1995 to provide an expeditious and inexpensive forum to bank customers for resolution of their complaints relating to deficiency in banking services. The Ombudsman Scheme is a system of expeditious and inexpensive resolution to customer complaints. The customers who are unhappy with the services rendered by a bank or face problems while dealing with one can apply to the banking ombudsman for redressal under the RBI s Banking Ombudsman Scheme. Banking ombudsman exploits the Redressal policy to reach out to the large number of customers which are beyond the reach of traditional Redressal systems. In this regard the paper evaluates the performance of Banking Ombudsman Scheme 2006 in terms of complaints received on Deposits, Loans, ATM Debit cards and credit cards, pension, Non observance of fair practices, total complaints and region wise complaints and in this paper we have analyzed the impact of Banking Ombudsman Scheme on service quality provided by banking institutions. For this purpose Trend analysis technique have been employed. The study indicates that the number of complaints against banking institutions has been continuously increasing under the Banking Ombudsman Scheme in regions like Patna, Kanpur Bhubaneshwar, Guwahati, Mumbai and continuously decreasing in regions like Ahmedabad Chandigarh, Chennai, Jaipur, Kolkata and New Delh. The total complaints against foreign banks have been decreasing while the total complaints against private sector banks have been increasing. No doubt, the scheme will gain more popularity in future and its impacts on service quality by banks will be positive. Keywords Banking Performance, Banking Ombudsman, Customer Complaints, Grievances 1. Introduction In the present scenario of competitive banking, excellence in customer service is the most important tool for sustained business growth. Customer service has been the challenging job in the banking industry, specifically, after the financial sector reforms and implementation of new age technology. Providing prompt and efficient service is on the top agenda of commercial banks to attract and retain the new customers. Making banks more customer-friendly has also been high on the agenda of the Reserve Bank of India. Reserve Bank of India has taken so many steps in this regard, which includes deregulation of interest rates, deregulation and setting up of ATMs, payments system initiatives like RTGS (Real Time Gross Settlement) and NEFT (National Electronic Fund Transfer), adoption of Fair Practices Code (Lender s liability), issuance of guidelines for handling of card products, implementation of code of conduct for Direct Selling Agents (DSA) and Direct Recovery Agents (DRA), setting up of a mechanism to handle the customer complaints, etc. It is the result of RBI s initiatives that today all commercial banks have their own grievance redressal cells to handle the grievances of their customers. However, sometimes, customers complaints are not handled properly by banks, which may result in dissatisfaction to the customers. At this point of time customer is in a dilemma about where to file a complaint against the deficiency in services rendered by the banks. Courts may not be the right choice because of long time involved in settling of cases and heavy costs. Here,

American Journal of Business, Economics and Management 2015; 3(6): 324-329 325 Reserve Bank of India has provided an alternative mechanism to handle the customers grievances by setting up of Bank Ombudsman in India. The prime objective behind the setting up of Bank Ombudsman was to provide an expeditious and inexpensive forum to bank customers for resolution of their complaints relating to deficiency in banking services provided by commercial banks, regional rural banks and scheduled primary co-operative banks. There are 15 Offices of Banking Ombudsman (OBOs), spread across the country. RBI modified the Scheme in 2002, 2006, 2007 and 2009 on the basis of feedback gathered in the course of administering the BOS to include customer complaints on new areas such as credit card complaints, internet banking, deficiencies in providing the promised services by both bank and its sales agents (DSAs), levying service charges without prior notice to the customers, no adherence to the Fair Practices Code adopted by individual banks, etc. RBI operates the BOS, free of cost, so as to make it common people oriented. In order to increase its effectiveness and utility, BOS is fully staffed and funded by RBI. 2. Literature Review The number of studies has been conducted regarding the services of banking ombudsman to their customers. Some of them are listed below: Shankar (2004) asserts that customer service in banks means satisfying the needs of customers at the right time and in the right manner with accuracy, reliability, high service speed, security and enquiry facility for inefficient customer service. The excellent and managing customer relationship is the future of any business or everybody s business. As such, customer focus is not being viewed as just a business strategy, but should become corporate mission. The ongoing review shows that a customer s satisfaction of is an invaluable asset for the modern organization. To reduce the complaints, bank should improve service because the survival of banking business is dependent on customer service. Furthermore, Kamakodi (2007) examines how computerization has influenced the banking habits and preference of Indian customers, and which factors influence these preferences. Changing of residence, salary and non-availability of technology based services were given as the three main reasons for changing bank. Jain and Jain (2006) show that the Indian banking industry has undergone radical changes due to liberalization and globalization measures undertaken since 1991.There has been a great surge in retail banking. The study based on responses received from 200 customers of Housing Development Financial Corporation (HDFC) bank, Industrial Credit and Investment Corporation of India (ICICI) bank and some other private and nationalized banks in Varanasi identified the various types of services offered by banks, the level of satisfaction about different types of services, expectations about these services and the level of segmentation among the services offered. Goyal and Thakur (2008) concludes that public sector banks that have no monopoly licenses are to be given to new public sector banks and foreign banks. However, when the public sector banks realized that government was no longer there for them, they started devising various strategies for survival and growth. In the present study, the researcher has taken 3 public and private sector banks. 3. Objective The main objective of the paper is to Study the Impact of Banking Ombudsman Scheme on service quality provided by banks. 4. Research Methodology 4.1. Sources of Data The paper is based on Secondary Data. The sources of secondary data are annual reports, browsing internet, through articles. 4.2. Data Analysis Tools To analyse the data trend analysis is applied. 4.3. Data Analysis and Interpretation Table 1. Complaint on Deposits. Nationalised Banks 379 3135 1,366 1,370 100 827 360 361 State Bank Group 347 2607 1262 1415 100 751 364 408 Public Sector Banks 726 5742 2,628 2,785 100 791 362 384 Old Private Sector Banks 50 250 133 102 100 500 266 204 New Private Sector Banks 591 1644 796 811 100 278 135 137 Private Sector Banks 641 1894 929 913 100 295 145 142 Foreign Banks 293 506 159 134 100 173 54 46 Scheduled Commercial Banks 1,660 8,142 3,716 3,832 100 490 224 231

326 P. Malyadri and S. Sirisha: A Study on the Impact of Banking Ombudsman Scheme on Service Quality Provided by Banks The above table presents trends for deposits for three years i. e 2012, 2013 and 2014. The base year on which the analysis is based is 2011. The index is 100 for the base year 2011. The above trend analysis gives a picture of how deposits changed over time. The index for deposits indicate whether the deposits is increasing or decreasing and at what rate. The table shows a growing trend in all the hree years of the study as compared to the base year 2011. Table 2. Complaints on Loans and Advances. Nationalised Banks 1891 2086 2292 2191 100 110 121 116 State Bank Group 1371 1851 1,860 1,941 100 135 136 142 Public Sector Banks 3,262 3,937 4,152 4,132 100 121 127 127 Old Private Sector Banks 185 335 238 267 100 181 129 144 New Private Sector Banks 647 993 929 722 100 153 144 112 Private Sector Banks 832 1,328 1,167 989 100 160 140 119 Foreign Banks 199 329 167 159 100 165 84 80 Scheduled Commercial Banks 4,293 5,594 5,486 5,280 100 130 128 123 From the above table it is observed that there is a continuous increase in the complaints on loans and advances in the year 2012, 2013 and 2014 in case of public sector banks. Though there is increase in the complaints on loans and advances in the year 2014 in case of old private sector banks and new private sector banks as compare dto base year, yet over all complaints in private sector banks is comparatively as compared to public sector banks.in case of foreign banks the complaints on loans and advances declined in the year 2013 and 2014 as compare to base year. Table 3. Complaints on ATM/Debit cards and Credit cards. Nationalised Banks 3,343 3,223 3,961 4,565 100 96 118 137 State Bank Group 5,874 5,998 6,106 5,582 100 102 104 95 Public Sector Banks 9,217 9,221 10,067 10,147 100 101 109 110 Old Private Sector Banks 149 141 196 253 100 95 132 170 New Private Sector Banks 647 3,104 4560 4967 100 480 705 768 Private Sector Banks 796 3,245 4,756 5,220 100 408 597 656 Foreign Banks 3,196 1,771 2,789 2,837 100 55 87 89 Scheduled Commercial Banks 13,209 14,237 17,612 18,204 100 108 133 138 Complaints on ATM/Debit cards and credit cards shown an increasing trend in case of public sector banks (101%, 109% and 110%) and private sector banks (408%, 597% and 656%) whereas in case of foreign banks it has shown a declining trend. (55% and 87%). If we compare both public banks and private sector banks, private sector banks increasing trend is more than that of public sector banks. Table 4. Complaints on Pension. Nationalised Banks 1746 1975 2018 2326 100 113 116 133 State Bank Group 4000 3818 3596 4118 100 95 90 103 Public Sector Banks 5746 5793 5614 6444 100 101 97 112 Old Private Sector Banks 1 1 13 4 100 100 1300 400 New Private Sector Banks 42 38 17 19 100 90 40 45 Private Sector Banks 43 39 30 23 100 91 70 53 Foreign Banks 21 13 2 4 100 62 10 19 Scheduled Commercial Banks 5,810 5,845 5,646 6,471 100 101 97 111 The pensions are shown increasing trend in case of nationalised banks and in the case private sector banks it is decreasing trend. In case of foreign banks the trend line is fluctuating and as a result the overall performance of scheduled commercial banks is showing variations in the trend line.

American Journal of Business, Economics and Management 2015; 3(6): 324-329 327 Table 5. Complaints on Non-Observance of Fair Practices. Nationalised Banks 4,680 3,379 3,675 5,072 100 72 79 108 State Bank Group 4,119 4,160 3,138 3,601 100 101 76 87 Public Sector Banks 8,799 7,539 6,813 8,673 100 86 77 99 Old Private Sector Banks 254 181 308 424 100 71 121 167 New Private Sector Banks 3,124 1,920 2,519 2,773 100 61 81 89 Private Sector Banks 3,378 2,101 2,827 3,197 100 62 84 95 Foreign Banks 1,163 548 616 703 100 47 53 60 Scheduled Commercial Banks 13,340 10,188 10,256 12,573 100 76 77 94 The above trend indicates that all bank groups are showing declining trend as compared to base year 2011 but in case of old private sector bank there was a decreasing trend in the year 2012 but again the trend increased in the year 2013 and 2014 as compared to the base year 2011. Table 6. Total Complaints. Nationalised Banks 12039 13798 13312 15524 100 115 111 129 State Bank Group 15711 18434 15962 16657 100 117 102 106 Public Sector Banks 27750 32232 29274 32181 100 116 105 116 Old Private Sector Banks 639 908 888 1050 100 142 139 164 New Private Sector Banks 5052 7699 8821 9292 100 152 175 184 Private Sector Banks 5690 8607 9709 10342 100 151 171 182 Foreign Banks 4872 3167 3733 3837 100 65 77 79 Scheduled Commercial Banks 38312 44006 42716 46360 100 115 111 121 The above table depicts that there is a continuous increasing trend in case of private sector banks and in case of foreign banks as compared to the base year 2011. Table 7. Region-wise Complaints received at Banking Ombudsman Offices. Regions 2011 2012 2013 2014 2011 (%) 2012 (%) 2013 (%) 2014 (%) Ahmedabad 5190 4590 4838 4588 100 88 93 89 Bangalore 3470 3486 3318 4101 100 101 96 118 Bhopal 5210 5953 4920 4907 100 114 94 94 Bhubaneswar 1124 1826 1523 1498 100 162 135 133 Chandigarh 3559 3521 3094 3162 100 99 87 89 Chennai 7668 6614 7255 8775 100 86 95 114 Guwahati 584 708 807 770 100 121 138 132 Hyderabad 5012 5167 4303 4477 100 103 86 89 Jaipur 3512 4209 4099 4104 100 120 117 117 Kanpur 8319 9633 9012 8389 100 116 108 101 Kolkata 5192 4838 4388 4698 100 93 85 91 Mumbai 7566 7905 8607 9965 100 104 114 132 New Delhi 10508 9180 9444 11045 100 87 90 105 Patna 2283 2718 2785 3253 100 119 122 142 Thiruvananthapuram 2077 2541 2148 2841 100 122 103 137 We observe from the above table that in the regions like Ahmedabad Chandigarh and Kolkata the complaints received at Banking Ombudsman Officers trend rates are less in the year 2012, 2013 and 2014 as compared to the base year 2011. Whereas in case of patna, Kanpur Bhubaneshwar, Guwahati and Mumbai the trend rate was higher in the year 2012, 2013 and 2014.

328 P. Malyadri and S. Sirisha: A Study on the Impact of Banking Ombudsman Scheme on Service Quality Provided by Banks 5. Conclusion In case of complaints related to deposit accounts it is predicted from the trend analysis that in future period the complaints trend regarding deposit accounts may increase as compared to the base year in all bank groups except foreign banks. In case of foreign banks it is predicted that the complaints may show decreasing trend as compared to base year. Delays in credit, non-credit of proceeds to parties accounts, non-payment of deposit or non-observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in savings, current or other account maintained with a bank were the major reasons for complaints in the category of Deposit Accounts In case of complaints pertained to loans and advances it is predicted from the trend analysis that in future period the complaints trend regarding loans and advances witness the upward trend in case of public sector banks and private sector banks, whereas in the case of foreign banks it witnessed the downward trend. The reason why public sector banks and private sector banks have more complaints as compared to foreign banks because complaints pertaining to non - sanction/delay in sanction of loans, charging of excessive rate of interest, non-return of title deeds, non-issuance of no due certificate, wrong reporting to CIBIL etc may be more In case of complaints related to ATM/Debit cards and Credit cards the trend analysis proved that the future trend of public sector banks and private sector banks consists of upward trend and the foreign banks consists of down ward trend. Again if we look at the analysis between public sector banks and private sector banks the complaints on ATM/Debit cards and Credit cards are growing at much faster speed in case of private sector banks as compares to public sector banks The reasons for these card-related complaints may be issue of unsolicited cards, sale of unsolicited insurance policies and recovery of premium, charging of annual fees in spite of being offered as 'free' card, authorization of loans over phone, wrong billing, settlement offers conveyed telephonically, non-settlement of insurance claims after the demise of the card holder, exorbitant charges, wrong debits to account, non-dispensation/short dispensation of cash from ATM, skimming of cards, fraudulent withdrawals using debit/credit cards etc. Pension related complaints were mainly regarding delayed payments, errors in calculations and difficulties in switching over to family pension and these complaints are more in case of Nationalised banks. Complaints in the category of Non-Observance of Fair Practices indicate the lack of awareness about the Codes amongst bank staff as also the customers. It also reveals the lack of bank s commitment to adhere to agreed terms & conditions. There is a need for the banks to devote special attention to this aspect and provide appropriate training to their front level staff regarding these Codes The total complaints received by Banking Ombudsman against different bank groups reveals that the majority of the complaints pertain to public sector banks and private sector banks and the number of complaints against foreign banks are less as compared to the base year which shows that Indian customers are most satisfied with the foreign banks carrying out operations in India. This analysis clearly depicts that the services of Indian banks are poor as compared to foreign banks so the Indian banks should take care about the different complaints that are received by banking ombudsman. 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