(Co-authored with Vimal Balasubramanium, Aishwarya Gawali, Nancy Gupta and Srishti Sharma)

 

In previous articles, we examined the extent of grievances and redress for various financial products in the financial market landscape, specifically for banking and pensions. We also evaluated whether grievance redress mechanisms worked and what was the impact of grievances on the usage of products. In this article, we explore the degree of rural-urban disparities in consumer's financial grievance redress experience for the most used products in our sample. The top three products are Banking deposits, ATM/Debit cards, and Life Insurance.

 

The analysis is based on a survey of 21,355 respondents, conducted in five states, including Maharashtra, Bihar, Haryana, Madhya Pradesh, and Andhra Pradesh. All five states belong to different zones of India to ensure heterogeneity. 54% (11,475 out of 21,355) of our survey respondents come from rural areas, and the rest are from urban areas. The sampling strategy and questions asked can be found in a previous article.

 

The extent of grievances in contrast to their usage

 

We begin by mapping the usage of the selected products in rural and urban areas. The use of banking products was high and similar in rural areas, at 78% (8993 out of 11475), and urban areas, at 85% (8414 out of 9880). Of the Banking deposit users from the urban areas, 16.5% (1392 out of 8414) reported having grievances in the last 12 months. This is twice as high as the extent of grievance reported by rural respondents, at 8% (720 out of 8993).

 

Life insurance usage in urban areas, at 23% (2259 out of 9880), was three times more than that in rural areas, at 8% (895 out of 11475), in our survey. This corroborates with the evidence of low penetration of life insurance in rural India, at a mere 8-10%. The extent of grievance for life insurance was  on the lower end for both regions, at about 6% among rural users and 4% among urban users. Life insurance and ATM/ Debit card services, have three  times more urban penetration than rural ones. Still, the usage of the banking product was fairly similar in both regions.

 

In our survey, ATM/Debit card services usage was distinctly more prevalent among urban respondents at 59% (5816 out of 9880) than rural respondents at 24% (2809 out of 11475). There is evidence that the gap in usage of ATM and Debit cards among rural respondents is more due to the low deployment of ATM in rural areas. According to this, over 65% of the Indian population resides in rural India, yet, they account for only 20% of all ATMs in the country. In our survey, the extent of grievance was not significantly different among the rural and urban ATM and debit card users, with a difference of 3%. About 13% (355 out of 2809) of rural ATM/Debit card users and 16% (924 out of 5816) of the urban users reported having faced a grievance. This aligns with the proportion of complaints about ATM/ Debit Cards (14.65%) reported by an RBI report. 

 

From grievance to complaining and resolution: The Rural-Urban Disparity

 

In this section, we explore the degree of disparity in the complaints and experience with the grievance redress mechanism based on the geographical locations of the respondents. Table 1 presents the number of respondents who have used the selected financial products and their experience with grievance and its resolution. This helps us understand the working of the redress mechanism, both at the level of financial service providers (FSPs) and the regulators.

 

Table 1: Rural-Urban disparities in grievances, complaints and resolution for Banking Deposits, ATM/Debit Cards, and Life Insurance

 

 

The difference in the number and proportion of usage among rural and urban respondents was marginal for banking deposits. However, the extent of grievance was twofold for urban users compared to rural users. Out of 1392 urban respondents having faced a banking deposit grievance, 48% (673) filed a complaint. Of these complaints, 76% (454 out of 673) were resolved by FSP. Among 720 rural respondents facing a banking deposit related grievance, 54% (391) filed a complaint to FSP. FSP resolved 53% (207 out of 391) of such complaints. The action of filing a complaint was higher  among rural respondents than urban respondents by 6%. But, the FSP's resolution rate for such complaints was higher for urban respondents by 14%. This indicates that the GRM is not as robust in rural areas. The complaining rates were more in rural areas; however, resolution remains an urban phenomenon.

 

From the table, we infer that the proportion of grievances for ATM/ Debit cards was similar for rural and urban areas, but the complaining rate in rural areas, at 63% (224 out of 355), was double of that in urban areas, at 32% (297 out 924). The resolution rate was close to the overall resolution rate of around 79% (410 out of 521) for rural and urban respondents.

 

The penetration of life insurance is low in rural India. The unawareness about the Insurance Ombudsman and the lower level of financial literacy in rural areas result in a low complaining rate. We observe a similar story in our sample. Among the rural respondents who had filed a complaint, 24% (9 out of 38) did not receive a resolution by FSP, and none of them escalated their complaints to the higher authority. This further highlights the lack of awareness about the Insurance Ombudsman in rural areas. On the other hand, 27% (4 out of 15) of the urban respondents did escalate their grievances to a higher authority. 75% (3 out of 4) of them received resolution upon escalation. Across all three products, the escalation of complaints, when unresolved by FSP, was very low in rural areas compared to those in urban areas. Across the products, we note about 9-10% rural-urban disparity in the escalation rate for banking deposits and ATM/Debit cards related grievances.

 

Nature of Grievance

 

Figure 1 illustrates the nature of the grievance encountered by the respondents in rural and urban areas for the selected financial products.

 

Figure 1: Nature of grievance for Banking Deposits, ATM/ Debit Cards and Life Insurance

 

 

As a result of encountering grievances with banking deposits, 19% (140 out of 710) of the rural respondents reduced usage of the product, and 15% (105 out of 720) of the rural respondents changed their bank. About 49% (355 out of 720) of rural respondents didn't change in their usage.

 

Upon encountering ATM/ Debit card grievances, a higher proportion of respondents from rural areas, at about 26% (93 out of 355), had to change their provider as opposed to that in urban areas, at 7% (68 out of 924). This could be due to the low deployment of ATMs in the region.Regarding life insurance, 43% (25 out of 58) of the respondents from rural areas stopped using the product, and 29% (17 out of 58) changed their service provider.

 

From the impact assessment, 49% (355 out of 720) of the banking deposit users and 22% (108 out of 501) ATM/Debit users made no changes in their consumption of the products upon experiencing a grievance. Most rural respondents choose to stop using life insurance upon encountering a grievance but make no changes when it comes to banking deposits and ATM/Debit cards. Across all three products, more respondents from the urban region warned their friends and family than those from the rural areas.

 

Conclusion

 

There is much heterogeneity in the experience of rural, and urban customers and their experience also varies by product. The GRMs in rural areas are working slightly better for the ATM/Debit cards. However, the GRMs for banking deposits and life insurance are performing better in urban areas. Creating awareness about GRMs needs to be made more robust for the rural regions of India. Though the Ombudsman functions as well as a grievance redress mechanism, the large number of unresolved complaints calls for a need to revamp the regulations to make them more proactive, transparent, helpful, and responsive to meet customer needs. It is imperative to understand and improve the existing grievance redress system, customized to each financial product.

 

Vimal Balasubramaniam is a researcher at Queen Mary University, London. Aishwarya Gawali and Nancy Gupta are researchers at NIPFP. Renuka Sane is a researcher at Trustbridge. Srishti Sharma is a PhD student at Texas A&M University.

 

The views expressed in the post are those of the authors only. No responsibility for them should be attributed to NIPFP.