Reserve Bank of India (RBI) Deputy Governor Rajeshwar Rao on Thursday noted that banks are focusing more on innovative customer acquisition methods and less on improving customer complaint handling mechanisms. Rao said this phenomenon seems strange for an industry that prides itself on being a service sector
He was speaking at the annual FICCI-IBA banking conference.
Rao said, “While banks are investing hugely in forging new and innovative ways of acquiring customers, there seems to be very little going on to improve customer complaint handling mechanisms. I find this very strange for a sector that prides itself on being a service sector.”
Stressing the need to strengthen cybersecurity and prevent cyber fraud, the Deputy Governor said cases of fraud and data breaches among customers are increasing, and banks’ efforts to provide timely solutions to customer complaints are not keeping pace have kept up with the explosion of technology and products.
“The banking landscape is evolving with an increase in financial inclusion, customer access, product choices and convenience. But the risks for consumers have also increased. There are increasing cases of fraud and data breaches,” Rao said in his address at the conference.
The Deputy Governor also said that excessive risk exposure within banks and financial institutions could lead to catastrophic consequences if not managed effectively.
“There are clear incentives to take risks. An overdose of risk in a leveraged entity such as a bank or a finance company can be disastrous if not managed efficiently,” he said.
Addressing the dynamic shifts in the banking system, he emphasized the need for banks to move away from their traditional sector-oriented strategies.
“As (the) banking-as-a-service model makes steady and quiet progress, banks need to operate as part of the larger ecosystem with (a) good number and variety of non-bank players in the mix,” he said . .
He said there are five elements to a robust and resilient financial system: strong governance and management, sound regulatory principles, sufficient capital and liquidity, strong supervisory and risk management practices, and effective crisis management and resolution frameworks.
Rao added that technology-driven frauds such as deceptive apps, privacy breaches and the rise of deepfakes have become widespread. He said the digital evolution has given rise to a new form of mis-selling known as ‘Dark Patterns’.
“Customers today face the threat of technology-enabled fraud, such as rogue apps, privacy breaches and deepfakes. Even mis-selling has now emerged in a digital avatar – called Dark Patterns,” he said.
“It has been said several times that we need banks, but we don’t need banks. This prophecy has yet to come true. “I am confident that banks will continue to be the key drivers of India’s growth story, but the trajectory of banks during this transition will determine what the banking landscape will look like in the next decade,” he said.
Rao concluded by saying that the innovations and collaborations should be well thought out, risks should be properly analyzed and mitigation plans should be put in place before offering them to customers.