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Saturday, May 14, 2022

Consumer Grievance Redress in Indian Financial Markets

by Vimal Balasubramaniam, Renuka Sane and Srishti Sharma.

Consumer financial protection, the world over, has become a core function for regulators in financial markets. One aspect of consumer protection regulation is handling customer complaints. Analysing consumer complaints is important to not only evaluate the functioning of the consumer complaints mechanism, but also because it provides useful feedback for policy. All financial regulators in India mention consumer protection in their regulations, and have some mechanisms for consumer grievance redress and enforcement. However, systematic evidence on the grievances consumers face, and how the complaints mechanism responds to the complaints is missing. There is no work thus far that also maps actual incidence of grievances to those observed by the regulatory system --an important metric for policy and institutional design for grievance redress.

In a new working paper, Consumer Grievance Redress in Indian Financial Markets, we offer the first systematic evidence through a representative survey in the National Capital Region (NCR) region in India, on the extent of grievances in retail financial markets and how much the formal complaint mechanism actually misses. We also offer evidence on the type of grievances, and the reasons people don't complain. Our results suggest the following:

  1. Official estimates of complaints under-report total grievances by 60-80 times. That is for every complaint on banking and payments that makes it to the regulatory system, there are 60 grievances that do not get reported. For every official complaint on insurance there are 88 complaints that do not get recorded.

  2. Grievances in banking and payment mostly pertain to "transaction issues" such as delays in payments, and technology malfunction. Grievances in insurance, however, often pertain to "non transaction issues" such as mis-selling and fraud.

  3. When presented with hypothetical scenarios most respondents say they would lodge a complaint. However, in reality, very few of them do. This suggests that there are a number of frictions in the process - ranging from limited information about the process, to limited faith that a resolution is even possible.

  4. Those in vulnerable groups (with low education and low assets) are less likely to voice their complaints, and more likely to not have enough information about the redress procedure.

We hope these results provide inputs to the design of grievance redress mechanisms in financial markets in India. In order to sustain participation in, and enable the efficient use of financial markets by households, a two-fold approach is required. First, there is a need for generating meaningful data on consumer experiences with financial products, and grievance redress frameworks while they interact with retail financial products and sales practices. This will enable an understanding of how the current system works, and whether it can be scaled from a banked population of 300 million it currently serves to over a billion Indians it will be expected to serve. Second, there is a need for a contextualised learning of what the principles and design of a grievance redress system that needs to cater to more than a billion Indians ought to look like. Our research is a step in this direction.


Renuka Sane and Srishti Sharma are researchers at NIPFP. Vimal Balasubramaniam is a researcher at Queen Mary University, London.

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