Grievance Redress in the Financial Sector in India: Lessons from the field

by Renuka Sane, Srishti Sharma and Karthik Suresh.

The Reserve Bank of India (RBI) recently announced measures to strengthen its grievance redress (or consumer complaints) system. This is a timely announcement as banks have not been performing well on customer service. There has also been an increase in the number of complaints on digital transactions. The National Strategy for Financial inclusion has also said that improved grievance redress would enable wider access to finance.

While research on financial inclusion and consumer protection in India has evolved in the last decade, studies specific to consumer complaints are more recent (Siddique and Tripathi, 2010; Balasubramaniam, Biswas, Sane and Sarah, 2020; Raghavan, 2020; Dvara Research and Khabar Lahariya, 2020). An understanding of the nature and extent of the problems in accessing existing systems is an important input to policy.

In this article, we present our findings from the group interviews we conducted with diverse customers in rural and urban Maharashtra. We present our learnings on the products customers use, the problems they have when using the products, and how they deal with the problems. We also study experiences in accessing formal grievance redress mechanisms (GRMs). These interviews have important lessons on the differences in the approach between rural and urban customers. This can be a useful input in making the GRMs more inclusive.

Sample

We conducted 12 group interviews in the months of January and February 2020 with a total of 120 participants in Nagpur and Wardha districts, and Mumbai. Participants in the groups varied in economic conditions and usage of financial products. The groups were as follows:

1. Nagpur and Wardha: The respondents belonged to eight villages in Nagpur and Wardha districts. These were women who were customers of Microfinance Institutions (MFI). Their occupations ranged from agriculture, dairy, animal husbandry and wage labour.

2. Mumbai: We interviewed four groups in Mumbai: members of a self-help group of women who live in slums, media professionals, post-graduate students from a premier educational institution, and retired men who were members of the committee for their co-operative housing society.

Details regarding the groups we interviewed are provided in Table 1.

Table 1: Description of group interviews

Location	Number of interviews	Group description	No. of participants	Gender	Age group	Smart Phone Usage
Nagpur	8	Microfinance customers	80	All women	30-50	5
Mumbai	1	Self Help Group	14	All women	30-50	All
Mumbai	1	Post-grad students	10	80% men	20-25	All
Mumbai	1	Committee members of a cooperative housing society	5	All men	55-65	All
Mumbai	1	Media professionals	6	All men	30-40	All

Group Interviews

A typical session lasted about 20-25 minutes. After general introductions, our conversation revolved around the following questions:

1. What kind of financial products did they use? Did they use banking services, credit, insurance, pensions, equity products, payment wallets etc.
2. Had they heard of regulators such as the RBI, or the Insurance Regulatory and Development Authority of India (IRDAI)? Had they heard of formal mechanisms of grievance redress such as the system of Ombudsman set up by the regulators?
3. Did they face any problems when using these products? If yes, what kind of problems did they face?
4. What did they do when faced with such problems? Did they complain? If yes, to whom? What happened after they lodged their complaints?
5. If they did not complain, why did they not complain?
6. What kind of improvements would they like to see in the complaints mechanism?

Sometimes, it is possible that consumers do not remember incidents that may have happened, or do not see certain incidents as "problems". We therefore used hypothetical scenarios of aggrieved customers. For each financial product, we designed 3-4 scenarios each of which showed a different type of grievance. Each scenario was also placed at a different level of escalation within the system. Table 2 shows the set of scenarios for banking services. For instance, in the first case the problem had just happened and no action had been taken. In the second instance, the customer had complained to the provider, but had not received a reply. In the third, the customer had complained to the regulator who ruled against the customer. After presenting the scenarios, we first asked participants whether they have faced similar situations in the past. We also asked them what they would have done if they would have been in the situation as described in the scenarios. This helps us explore how consumers would react to different situations.

Table 2: Examples of hypothetical case studies: Banking

Scenario 1	Raj found that an ATM withdrawal transaction has been debited twice in his passbook.
Scenario 2	The cashier at a bank talked rudely to Seema, who had politely requested him to work faster as he was gossiping and functioning slowly. The manager refused to intervene even after Seema had complained.
Scenario 3	The bank increased the interest rate by 3% on a home loan taken by Rahul, saying it has the right to change interest rates whenever it wishes. He complained to the Ombudsman, which agreed with the bank.

Findings

1. Access to financial instruments : We asked all the participants whether they used the following financial services: banking, insurance, payment apps, pensions and securities. Figure 1 shows the variation in access to these instruments among the rural and urban samples. The rural sample had access only to banking services, microfinance loans and micro-insurance products. Very few among the rural sample used an ATM card, and even fewer had heard of payment apps. Considering that most of the women did not own a smart phone, there was no usage of mobile phones for financial transactions. They met their MFI representative and visited their bank branch about once a month. The urban sample had access to all the products. Everyone had a bank account. In the overall pool of 120 participants, only 4 participants used pension products. Hence this article does not include information on the usage of pensions.


Figure 1: Access to financial instruments

2. Awareness of GRMs: We listed the the names of various regulators and redress mechanisms and enquired if participants had heard of them. Among rural participants, no one had heard about the regulators or knew about the existence of GRMs and ombudsman. When we presented the hypothetical scenarios, their response was to go to the service provider from whom they had purchased the product. If this failed, they would approach the police or a government official like district magistrate or tehsildar. There was no awareness about existing formal grievance redress mechanisms among the rural sample. Most of the urban participants had heard about the regulators but only a few knew about the grievance redress mechanisms.

3. Nature of grievances: The rural and urban sample differed in their perception of what constitutes a problem. The rural sample, for example, had internalised the rudeness of the staff. Misbehaviour, inconvenience (e.g. going to the bank branch to withdraw cash because the ATM card doesn't work) etc. were not seen as major problems. Everyone in the rural sample first reported they had never faced a problem with their bank or MFI. But when we shared the scenarios described earlier, two women said that they had faced such problems in the past. The grievances were mostly related to difficulty in opening bank accounts, ATM card getting stuck in the machine and an increase in interest rates. In the urban sample, the nature of grievances ranged from wrong debit transactions, mis-selling of insurance products, rude behaviour, delays in service delivery and concerns for data privacy (See Table 3).

4. Response to the grievances: In the rural groups, women had not taken any action to seek redress. In one instance, a woman in Wardha district shared that her ATM card got stuck in the machine while she was withdrawing cash. Instead of approaching the officer at the branch, she stopped using the ATM card altogether and now visits the bank branch every time she wishes to withdraw cash. Some of the participants in the urban groups who had a grievance had approached the bank/insurance company and the regulator. In some cases, the threat of going to the regulator drives the service provider to resolve the complaint immediately. For example, a respondent in Mumbai told us that he had informed the branch manager that he has written to the RBI Ombudsman since a complaint had not been resolved within a reasonable time-frame. The branch manager ensured that his complaint was addressed on priority basis. Table 3 provides a description of the nature of grievance, as well as the response of the participant.

Table 3: Nature, responses and outcomes of grievances

Grievance	Response	Outcome
Rural
Banking
ATM card got stuck	Stopped using ATM card	Goes to branch
Rude behaviour, refusal to entertain the complaint	No action
Microfinance
Threat to increase interest rates	No action
Charge higher rate of interest than what was informed	No action
Painful recovery process	No action
Urban
Banking
Opening bank account	Approached Tehsildar after six months	Changed the provider
Sharing data with third party vendors	Online complaint to bank	Stopped getting unsolicited communication calls
Refusal to make cheque/DD	Letter to Ombudsman	Manager apologised and issued cheque
Lack of cooperation by bank staff	Met the branch manager	Issue resolved
Delays in EPF payment	Letter to Ombudsman	Matter out of jurisdiction
Insurance
Mis-selling of policy	Contacted branch office	No satisfactory response

5. Reasons for not complaining: Fear of retribution was one of the major reasons for not complaining about grievances, especially among the rural sample. These participants were afraid that if they try to take any action, they might face an adverse action from the service provider e.g. difficulties in getting a loan. One of the respondents from Nagpur district told us, "when the bank staff speak to us rudely, we just let it go. We did not want to create an issue with the bank manager." Further, they felt that even if they complain, nobody will listen to them. Among urban professionals, the most common reasons for not complaining were lack of trust in the system, complexity of procedures and the time consumed by these procedures. For instance, one student shared that his parents were mis-sold an insurance policy, however they did not file any complaint citing that their problem was unlikely to be resolved. Some participants also reported that they did not consider their problem to be big enough to undertake the effort to complain.

Implications for the design of GRMs

The Indian Customer Satisfaction Index (ICSI) study showed that Indian banks have customer loyalty score of 65 compared to Singapore (74), US (72), South Africa (71) and UK (67). Yet, only a small fraction of consumers file complaints with the regulators in banking, insurance and pensions sectors. Indians operate 574 million basic savings bank accounts however for FY2019, the RBI Ombudsmen across 21 offices in India received only 1,95,901 complaints in FY2019 i.e. 0.34 complaints per thousand accounts. With life insurance products, this figure for FY19 stands at 0.59 complaints per thousand policies sold. For comparison, the corresponding figure for the Financial Ombudsman Service (FOS) in the United Kingdom (UK) is 2.3 complaints per thousand accounts during the same period. Our study sheds light on some of the reasons for the low rates of complaints despite the high level of dissatisfaction.

1. Perceived cost of inconvenience: We found that the perceived cost of inconvenience or bad behaviour is very low for the rural and urban poor samples. Those who faced such problems either took no action or stopped using the product. Only when there was some kind of monetary loss, consumers took some action. The cost of inconvenience is compounded for women who have recently become a part of the formal financial sector and gotten access to microfinance loans. For instance, one woman who took a microfinance loan shared that a recovery agent stayed at her home for 12 hours and refused to leave without the money. She did not file a complaint because she perceived her inconvenience to be lower than the threat of losing access to the product.

2. Low levels of awareness: Awareness about the grievance redress mechanisms in both rural and urban samples is low. Lack of awareness increases the cost of complaining. The problem is further exacerbated by the fact that spreading awareness of existing processes to seek redress is not high on the agenda of financial service providers.

3. Fear of retribution and perceived right to redress : The low levels of engagement with GRM in the rural sample is driven by the fear of retribution. We also saw that the propensity to complain within this group depended on their perceived right to redress. They felt that redress is a luxury for them and not a right.

4. Costs of complaining: Among the group that has an awareness of GRMs, and an awareness of their rights with limited fear of retribution, the costs of the process were seen to be very high. For instance, due to delays in processing cheques by the bank, one respondent, a middle aged professional from Mumbai, could not obtain a favourable rate of interest for his provident fund payment. He approached the ombudsman to complain regarding the loss he incurred due to the lower interest rate. However the ombudsman responded by stating that the matter was outside their jurisdiction. Confused with which provider to approach, he did not pursue the matter further.

Our results suggest that there are deficiencies in the existing GRM process, and consumers are responding to their dissatisfaction either by bearing with the problem, changing their behaviour to avoid confrontation with the system, or stopping the use of the financial product entirely. These seem to be the preferred modes of adjustment relative to formally complaining.

Spreading awareness about the rights of consumers, and the formal grievance redress mechanisms should be a vital element of any good GRM design. Information should be imparted on types of legitimate grievances for which a customer can seek redress. Such an effort would help mitigate consumers' fear of retribution associated with the task of complaining. The onus of spreading awareness on rights to redress and redress mechanisms should be put on financial service providers. The providers should not only impart knowledge on existence of such mechanisms but also explain the methods to access these systems and to escalate their complaint in case of unsatisfactory resolution. Moreover, there is a need for simplification of grievance redress process, especially in the cases where two or more financial products are involved and jurisdictions of various regulators are unclear. Such measures would reduce the cost of complaining and improve trust among the consumers about the system.

Conclusion

Financial inclusion is one of the major policy goals for the Indian government. Aided by various government schemes like the Pradhan Mantri Jan Dhan Yojana, 357 million new savings bank accounts with insurance coverage have been opened since March 2014. The number of National Pension Trust subscribers has doubled from 6.5 million in FY2014 to 13.9 million in FY2020 and the number of demat accounts of Indian residents registered with the National Securities Depositories Ltd. (NSDL) has increased from 13.4 million in FY2014 to 19.1 million in FY2020. However, to sustain financial inclusion, an effective customer grievance redress mechanism (GRM) is important. The group interviews helped us understand the nature and extent of complaints, the reasons that consumers chose to complaint or not and the experiences consumers had while engaging with the GRM. We hope that the lessons from such studies can provide valuable insights to regulators as they take steps towards improving existing grievance redress mechanisms.

References

Balasubramaniam, Biswas, Sane and Sarah (2020), Estimating customer complaints using Twitter feeds, The Leap Blog, 14 May 2020.

Dvara Research and Khabar Lahariya (2020), Video series on access, redressal and finance in Uttar Pradesh.

Raghavan (2020), Transaction Failure Rates in the Aadhaar Enabled Payment System: Urgent Issues for Consideration and Proposed Solutions, 21 May 2020.

Siddiqui and Tripathi (2010), An analytical study of complaining attitudes: With reference to the banking sector, Journal of Targeting, Measurement and Analysis for Marketing, Vol. 18, p. 119-137.

The authors are researchers at NIPFP. We thank Sudipto Banerjee and Sarang Moharir for participating in the Mumbai interviews. We thank Vimal Balasubramaniam for useful comments.