RBI Ombudsman grievance data shows high retail discontent: Remedial measures, please

The 2024-25 annual report of the Integrated Ombudsman Scheme (IOS), a framework designed for complaint handling, offers details and analysis of the sector’s receipt and resolution of complaints. It shows the scale of the problem that needs to be tackled.

At a broad level, the IOS platform received 1,334,244 complaints during 2024-25, a rise of more than 13.5% over 2023-24. How lightly the banking industry appears to take customer service is reflected by the fact that over 87% of them came from individual customers.

Significantly, most related to loans and advances, with disgruntlement over credit cards coming second and both categories making up over 46% of all gripes. Rising discontent, with many grievances left unaddressed, reveals a weakness that must not be allowed to persist.

The sector’s retail services account for most of last fiscal year’s grievances. Retail customers are far more numerous in general, but rapid expansion in this segment over the past few years has had an effect on complaint data sliced by the nature of bank ownership. Private sector banks notched up the highest number, accounting for over 37.5% of the grouses.

This turns on its head the popular perception that public sector banks (PSBs) lead the field in customer apathy and deficient service standards. Complaints against PSBs shrank by close to 9% from the previous year.

The reason for this switch can be traced to the private sector’s particularly sharp pivot to retail growth once corporate credit began to slow down. Private banks have not just been hyperactive in the origination of unsecured small-ticket loans, but have aggressively enrolled credit card customers, many of whom are debtors with nothing put up as collateral.

All-out drives by lenders to sign up people are often at the expense of proper loan appraisals or assessments of creditworthiness. Friction tends to arise or worsen when loan repayments fall due and collection agents use underhand methods. Confusion over dues is another fallout of hasty or faulty on-boarding processes.

There is a lesson in all this for RBI and its regulatory framework. The justice system for retail customers, as revealed by the central bank’s ombudsman scheme, exposes gaps in the treatment of retail customers by regulated entities and points to a crying need for remedial measures.

A four-fold increase in complaints against credit bureaus also demonstrates today’s lopsided design: most of these bureaus accept whatever banks tell them to adjust their ratings of individual customers, even if there might be a dispute. This is because these entities are beholden only to the banks that pay their fees, relegating those who suffer rating cuts to a secondary position in their hierarchy of importance.

Typically, the banking industry still treats retail customers primarily as a source of deposits, deserving of limited service, and this flies in the face of its effort to convert this cohort into a reliable source of revenue. Depositors shifting their attention to other asset classes should come as a wake-up call for private banks. They may have to contend with lower margins if this trend strengthens, as it well might.