RBI Report: Credit Card Complaints EXPLODE! Private Banks Face Scrutiny as Grievances Skyrocket in FY25

The Reserve Bank of India (RBI) has released its Annual Report on the Ombudsman Scheme for 2024-25, highlighting a substantial increase in customer complaints related to credit cards. This trend marks a concerning development in the banking sector, particularly for private financial institutions.

Key Findings: Credit Card Complaints Surge

• Overall credit card complaints escalated by 20.04% to 50,811 cases during FY25.
• This significant rise contrasts with improvements seen in other banking service areas.

Private Sector Banks Lead Grievances

• Private sector banks were the primary source of these complaints, reporting 32,696 cases.
• This is dramatically higher than the 3,021 complaints received by public sector banks.
• The trend is linked to private banks' aggressive strategy in the unsecured lending market and rapid expansion of their credit card businesses.
• Private banks' share of total banking complaints rose from 34.39% in FY24 to 37.53% in FY25, totaling 1,11,199 grievances.

Trends in Other Banking Services

• Encouragingly, complaints related to ATM and debit card transactions fell by 28.33% to 18,082 cases.
• Issues with mobile and electronic banking declined by 12.74% year-on-year.
• Pension-related complaints dropped by 33.81%, remittances & collections by 9.73%, and para banking by 24.16%.
• However, complaints about deposit accounts increased by 7.67%, and loans & advances by 1.63%.

Small Finance Banks Face Operational Strain

• While smaller in scale, small finance banks recorded the most dramatic increase in complaints, with a 42% year-on-year jump.
• This signals potential operational strains as these banks expand their reach into underserved markets.

Overall Banking Complaint Landscape

• The report indicates a broader shift in the banking landscape, with private sector banks now accounting for a larger proportion of customer grievances.
• Public sector banks, previously perceived as having high complaint volumes, saw a decline in their share of total complaints from 38.32% to 34.80%.
• Individuals filed the overwhelming majority of complaints, accounting for 87.19% of the total.

Impact

• This news could lead to increased regulatory scrutiny on private banks' customer service and risk management practices. Investors might reassess exposure to banks with higher complaint volumes, potentially impacting their stock prices. Customer trust in private banking services could also be affected, leading to higher operational costs for dispute resolution.
• Impact Rating: 6/10

Difficult Terms Explained

• Ombudsman Scheme: A mechanism set up by the Reserve Bank of India (RBI) to resolve customer complaints against banks and other financial service providers impartially and expeditiously.
• FY25: Fiscal Year 2025, which runs from April 1, 2024, to March 31, 2025, in India.
• Grievances: Formal complaints or expressions of dissatisfaction made by customers.
• Unsecured Lending: Loans granted without requiring any collateral or security from the borrower, such as credit cards or personal loans.
• PSU Banks: Public Sector Undertaking Banks, which are majority-owned and controlled by the Indian government.
• Para Banking: Services offered by banks that are ancillary to core banking activities, such as insurance or mutual fund distribution.