Around four years back, Chander Kanta Makhija, 62, a lecturer at Lady Shri Ram College, converted her shares to demat and opened a demat account with a leading bank. Someone forged her signature and sold shares worth Rs 400,000 from her account.

The person tried to sell another lot of shares worth Rs 400,000 but gave the wrong details. The bank called up Makhija and informed her that the details of the shares she wanted to sell were wrong. "I was alarmed as I never wanted to sell those shares," says Makhija. "When I went to the bank the next day, I was shocked to find that there was an older transaction worth Rs 400,000 which I never made." Her complaint at the bank fell on deaf ears. She filed a case in civil and criminal courts but is yet to receive justice.

The bank then offered to settle the matter if she withdrew the case. Makhija refused. "What is the guarantee that the issue will be solved if I withdraw my case?" she argues. It has been a long and painful journey for this academic who will retire soon. "I have spent lot of time, money and energy in fighting the case. Most of us face problems dealing with banks because we don't know our rights and the banks don't inform consumers clearly about their products."

All this is set to change with the new banking code announced in the last week of June 2006 by the Reserve Bank of India [Get Quote]. The code came into effect on 1 July.

Need for a code. "Despite the continued efforts of the RBI, the customer service in banks is far below the expectations of customers," says Vinay Baijal, CEO and member, the Banking Codes and Standards Board of India.

Therefore, as announced in the mid-term review of the Annual Credit Policy for 2003-04 in November 2003, the Committee on Procedures and Performance Audit on Public Services was constituted under the chairmanship of S S Tarapore, former deputy governor of RBI. It was felt that there was a need to benchmark the exact level of public services rendered by banks, and also the RBI.

"It was felt that the technological developments should be taken into account and the processes in banks rationalised accordingly," says Baijal.

The committee recommended that an independent, autonomous body be set up on the lines of the Banking Code Standards Board in the UK (See box: The Western Connection). The BCSBI has been registered as a society promoted by the RBI and 11 other banks. The management of the board has been entrusted to a governing council under the chairmanship of K.J. Udeshi, former deputy governor of the RBI.

The code. The code of banks' commitment to customers is an outcome of a collaborative effort among banks through the  Indian Banks Association and the BCSBI.

"This document codifies the practices that banks have agreed to follow," says Baijal. It is clearly stated that the code "sets the minimum standards of banking practices for banks to follow while they are dealing with customers".

"The code may be treated as a charter of rights for individual customers," adds Baijal. From among 80-odd banks in India, 60 have registered with the BCSBI indicating their willingness to adopt the code.

The code covers the gamut of services that banks provide - from opening accounts and recovering loans to charges on different products. "It is a welcome sign. Earlier, there was no written framework for these services. With these codes in place, there will be some uniformity in the way banks deal with their customers," says Ahmad Abdi, president, Consumer Action Network.

Adds G V Nageswara Rao, CEO, commercial banking, IDBI Bank: "These codes will bring about more transparency in the banking system as a whole."

New customer. The code states that before you become a bank's customer, it will clearly explain the key features of the products and services that you wish to apply for. The bank will also explain to you if that particular product can be provided through different means like an ATM or the bank's website. 

Harsh Pathak 31, Lawyer, Delhi

The SC issued notices to the Centre, the Law Ministry and mobile and financial service providers on a PIL filed by him against persistent unsolicited telemarketing calls. "I even got calls from a company saying I should invest in mutual funds as I had excess funds in my bank account."

Does this mean there will no fine print when products are advertised? "The advertisements will be as clear as possible," says Suresh Sethi, country head, transaction banking group and banking operations, Yes Bank [Get Quote].

M A Shah, general manager, The Jammu & Kashmir Bank, is more candid: "Ideally, the fine print should not be there."

So, if you want to open a savings account, the banks will specify the interest rate and charges applicable in case a minimum balance is not maintained. The banks will also give you information on your rights and responsibilities, especially the nomination facility offered on deposit accounts, articles in safe custody and safe deposit vaults.

Protecting privacy. Once you choose a particular product or service, you will automatically be registered for the 'Do Not Call Service'. Under this service, the bank will not share your information until you give your consent to it in writing. The bank has also to ensure that any third party whose services it avails of treats your personal information with the same confidentiality and security. "Protection of privacy is one of the most important points of the code," says Harsh Pathak, a Delhi-based lawyer.

Pathak used to get calls from telemarketers representing several companies. "Shockingly, I even got calls from a company saying I should invest in mutual funds since I had excess funds in my bank account," he says. Harassed by these calls, Pathak filed a PIL in the Supreme Court in February 2005 seeking an end to "the endemic invasion of privacy of the subscribers of mobile telephony services". The Supreme Court issued notices to the Centre and the Law Ministry directing them to bring forward legislation to ban unsolicited telemarketing calls.

It also issued notices to mobile phone service providers like MTNL [Get Quote], Hutch, Reliance [Get Quote] Infocomm, Idea Cellular [Get Quote] and Bharti Tele-Ventures, and to financial service providers such as Citibank, HSBC, Standard Chartered Bank, HDFC Bank [Get Quote] and ICICI Bank [Get Quote]. "Initially, the calls stopped. But after a while they started again," says Pathak. In February 2006, Pathak filed an interim application in the apex court to update the court on the developments. The matter is sub judice. Hopefully, with the codes clearly stating that an individual's details have to be protected, calls from unwanted quarters will decrease.

Interest rates and charges. Banks will explain the rationale behind the interest rates and charges applicable on the product you choose. However, you should understand that these rates can change over a period of time. Banks will display the tariff schedule in their branches and you can ask for the same. They will also list the services that are free of cost. Any change in rates and charges, or introduction of new charges, will be notified one month before they become effective. If such changes are to your disadvantage, you may, within 60 days and without notice, close your account or switch without paying any extra charges or interest.

Information will also be provided about the penalties in case of non-observance or violation of any of the terms and conditions governing the product and services that you choose. "Having punitive measures will act as a deterrent. Unless you have a system that takes some action against the guilty, the system will not work," says Abdi.

Collection of dues. In February 2005, Abdi had filed a PIL in the Bombay High Court to make it illegal and criminal for lending agents to employ outside agents to recover dues using strong-arm tactics. The court had asked banks to submit a list of recovery agents deployed by them. Then, in May 2005, the RBI came up with its draft guidelines on the same matter and Abdi withdrew his case. The banking code also clearly spells out the manner in which the dues can be recovered.

When you take a loan, the bank will explain aspects related to repayment like its periodicity and the tenure of the loan. However, if you default, then "a defined process in accordance with the laws of the land will be followed for recovery of dues". The process will involve reminders through notices or personal visits and/or repossession of security, if any. The person authorised to visit you for recovery will identify himself and display the authority letter issued by the bank. The interaction will be in a civil manner and the representatives will contact you only between 7 a.m. and 7 p.m. Your requests to avoid calls at a particular time will be honoured as far as possible. Calls or visits to collect dues will be avoided on calamitous occasions such as a bereavement in the family.

C K Makhija, 62,College lecturer

Somebody sold shares from her demat account. A second attempt at fraud failed because the the wrong details were given. She filed a case against the bank which offered to settle the matter if she withdrew her case. "What is the guarantee that the matter will be solved if I withdraw my case."

Complaint procedure. BCSBI will use its network of field officers to monitor compliance with the code. It will collect information on violation of the code through mystery shopping at branches, press reports, letters to editors of magazines and papers and also through local informal channels. What happens in case a member does not comply with the code? "Sanctions include warnings and public censure of the bank," says Baijal.

However, what does one do if one is faced with a problem similar to Makhija's? "There is a multi-tier redressal arrangement for customer-related grievances," says Baijal. You should first seek a solution from the bank branch itself. If you are not satisfied with the action taken at the branch, you can approach the controlling office or head office of the bank concerned. If the problem persists, you can take your case to the Banking Ombudsman.

On paper, the code aims to protect the interest of customers. "The real test lies in the implementation of these codes. It remains to be seen how seriously that happens," says Pathak. "Most of the things laid down in the code are already in practice. The only difference now is that they have been standardised. This should lead to fewer consumer complaints," says Shah. The banks, on the other hand, will have to train their staff on these codes. Only then will they achieve the purpose for which they were framed.

The Western connection

The Banking Codes and Standards Board of India (BCSBI) was set up as a joint effort of the RBI and 11 banks, on the lines of the Banking Code Standards Board (BCSB) of the UK. The UK's banking code is a voluntary one, evolved by the British Bankers' Association (BBA). It sets standards of banking practices for financial institutions to follow when they are dealing with personal customers in the UK. It provides valuable protection to customers on a day-to-day basis as also in times of financial difficulty. The code applies to savings deposits, current accounts, card products and services, loans, overdrafts and payment services, including foreign exchange. There has been a banking code for personal customers since 1991 and a business banking code since 2002 in the UK. The BCSB itself was formed in 1999 after the government and consumer bodies felt that a code of conduct setting out consumer rights was needed in the country. The banks and building societies accepted arguments in favour of guidelines for them and felt that self-regulation offered the best way forward. In the UK, 116 banks, building societies and credit card companies, representing almost the entire financial services community there, subscribe to the banking code. The government's National Savings & Investments also follows it. Initially, the board did face difficulties in persuading all the banks to accept its code. Generally, the BCSB is perceived to be a firm, fair, proportionate and low-cost regulator. The main recourse for consumers is to go to the Financial Ombudsman Service. It has the power to award up to �100,000 to consumers as compensation. The board is, however, open to hearing cases of breach of the code directly from consumers.

Cracking the code

You will be informed about premature withdrawal of term deposit. The bank will also disclose the interest rate policy for premature withdrawal. Banks must offer no-frills account with nil or very low minimum balances. When you open an account, the bank will tell you the period after which an account that has not been operated is classified as dormant/inoperative. Under normal circumstances, the bank will not close your account without giving you at least 30 days's notice. You will be told about the clearing cycle of local as well as outstation instruments, including details such as when you can withdraw money and when you will be entitled to earn delayed interest as per the bank's cheque collection policy. The bank will refund your account along with interest as soon as it is determined that money has been unauthorisedly or erroneously debited from your account under a direct debit. It will compensate you as per its policy. The bank will accept stop payment instructions for cheques issued by you.