Independent Research and Policy Advocacy

Suitability becomes a Customer Right

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The RBI has published on its website the final Charter of Customer Rights for banking customers. This Charter has retained all the five Rights mentioned in the draft Charter previously published and includes:

  1. Right to Fair Treatment
  2. Right to Transparency, Fair and Honest Dealing
  3. Right to Suitability
  4. Right to Privacy
  5. Right to Grievance Redress and Compensation

While all other rights have been captured to varying degrees in current customer protection rules and banking industry codes, the Right to Suitability has been enshrined by the RBI for the first time for retail customers of banks.

While Suitability as a regime was given legal recognition initially in Australia, and later on in other developed nations such as the UK, as well as in South Africa, a developing nation, the notion of Suitability as a right for retail consumers in India was first mooted by the FSLRC in 2013. The FSLRC called for three additional protections for retail consumers – these entailed the right to receive suitable advice, protection from conflicts of interest of advisors, and access to the redress agency for redress of grievances. Following this, the RBI Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households recommended that ‘every low-income household and small business must have a legally protected right to be offered only ‘suitable’ financial services. The RBI’s Charter enshrines the Right to Suitability as: The products offered should be appropriate to the needs of the customer and based on an assessment of the customer’s financial circumstances and understanding.

While there are certain divergences between the RBI’s definition and the definitions laid out by FSLRC or the CCFS, especially with regard to placing ‘customer’s understanding’ as a precondition, this is nevertheless a big first step in the same direction. The RBI has in its press release, also pointed out that all scheduled commercial banks, regional rural banks and urban cooperative banks are expected to prepare their own board-approved policy incorporating the five Rights of the Charter, and that such a policy must also contain monitoring and oversight mechanisms to be followed for ensuring that rights are not violated. This will pave the way for customer protection to shift from being an ex-post redressal process at the Banking Ombudsman along with self-regulation through industry bodies, to becoming a prerogative of the Boards of banks.

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