Final Final Thesis

Thesis Report
Impact of Consumer Redressal through Banking

Mohtasib Pakistan
12/3/2009
Table of Contents
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Table of Contents....................................................................................................... 2
1. Introduction............................................................................................................ 4
1.1 State Bank of Pakistan.......................................................................................4
1.1.1. History........................................................................................................4
1.1.2. Functions....................................................................................................5
1.1.3. Gold standards...........................................................................................5
1.1.4. Monetary Policy..........................................................................................6
1.2. Introduction to reforms – need for reforms.......................................................8
1.3. Consumer protection reforms...........................................................................9
1.4. Mohtasib.........................................................................................................14
1.4.1. Banking Mohtasib Pakistan.......................................................................16
1.4.2. Appeal Process.........................................................................................16
1.4.3. Procedure of filing the complaint.............................................................17
1.4.4. Types of complaints handled by the Banking Mohtasib............................18
1.4.5. Complaint Redressal Procedure:..............................................................18
1.4.6. Jurisdiction and Scope..............................................................................19
1.4.7. Manner of exercising the jurisdiction.......................................................20
1.4.8. Matters outside Banking Mohtasib authority............................................21
1.5. The Problem .................................................................................................. 21
1.6. Objective of the Study....................................................................................22
The main objective of this study is to identify the impact of the Banking Mohtasib
Pakistan. The impact of the Banking Mohtasib Department would be measured
through the various case studies being published by Banking Mohtasib
Department of SBP and the interviews conducted with the banking officials........22
1.7. Justification.....................................................................................................22
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1.8. Scope of Research and Limitations.................................................................22
1.9. Assumptions...................................................................................................22
1.10. Definition of Key-Terms................................................................................23
1.10.1. Mohtasib (ombudsman) .........................................................................23
1.10.2. Reforms..................................................................................................23
1.10.3. Banking Mohtasib Department...............................................................23
2. Literature Review.................................................................................................24
2.1 Liberalization Policies- Why were they needed................................................24
2.2. Banking Sector Reforms in Pakistan- An Overview.........................................26
2.3. Effects of reforms on consumers....................................................................29
2.4. Consumer Redressal through Banking Mohtasib Pakistan..............................30
2.5. Complaints..................................................................................................... 31
2.5.1. Treatment of Complaints in the Year 2005...............................................32
2.5.2. Treatment of Complaints in the Year 2006...............................................33
2.5.3 Treatment of Complaints in the Year 2007 ...............................................34
2.6. Impact of the Banking Mohtasib Pakistan- Case Studies................................36
3. Research Methodology.........................................................................................39
3.1 Research Design..............................................................................................39
3.2 Procedure .......................................................................................................39
3.3 Measurement/Instrument selection ................................................................39
3.4. Research Schedule.........................................................................................40
4. Data analysis ....................................................................................................... 41
4.1. Complaints per branch received by banks in years 2005, 2006, and 2007....43
4.2. Banks Receiving Maximum complaints per branch........................................43
4.2.1. Number of Complaints Registered in Year 2005.......................................44
4.3. Bank’s granting Complaints ratio...................................................................48
4.3.1. Number of Complaints Granted in Year 2005...........................................48
4.4. Analysis .........................................................................................................53
4.5. Interview with Mr. Raheel (NiB Bank)................................................................53
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4.6. Interview with Ms. Aliya Raza (Customer Support Officer, JS Bank) ...............54
4.7. Case Studies .....................................................................................................54
5. Conclusion............................................................................................................ 57
5.1. Conclusion......................................................................................................57
5.2. Recommendations..........................................................................................57
1. Introduction
1.1 State Bank of Pakistan
The State Bank of Pakistan (SBP) is the central bank of Pakistan. The bank is nationalized and
the scope of its functions is considerably broad. The headquarters are located Karachi with its
second headquarters in the capital, Islamabad. Under the State Bank of Pakistan Order 1948, the
state bank of Pakistan was charged with the duty to regulate the issue of bank notes and keeping
of reserves with a view to securing monetary stability in Pakistan and generally to operate the
currency and credit system of the country to its advantage.
1.1.1. History
The State Bank of Pakistan commenced operations on July 1, 1948. Before independence, the
Reserve Bank of India was functioning as the central bank for the four provinces Sindh, Punjab,
Baluchistan and NWFP. On 30th December 1948 the British government’s commission
distributed the Bank of India’s reserves between Pakistan and India in the ratio of 3:7 (i.e. 750 M
gold for Pakistan and 1750 m gold for India). In May 1948, Muhammad Ali Jinnah took steps to
establish the State bank Of Pakistan which were implemented in June 1948 and the bank started
its operations in July 1948.
In February 1994, SBP was given full autonomy during the financial reforms. On January 21,
1997, this autonomy was further strengthened when the government issued three Amendment
Ordinances. These changes gave full and exclusive authority to the State Bank to regulate the
banking sector, to conduct an independent monetary policy and to set limit on government
borrowings from the State Bank of Pakistan.
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1.1.2. Functions
Primary functions of the State Bank of Pakistan are to serve as the bankers’ bank as it keeps a
certain amount of deposits of the commercial banks. The main idea is to restrict the banks from
giving excessive loans and to provide the banks with cash or cash equivalent when they are
facing a liquidity crunch. It also serves as the banker to the government and carries out all the
transactions for the government. This may include issuance of currency notes, regulation and
supervision of the financial system and conduction of monetary policy.
Secondary functions includes the service provided by the State Bank Of Pakistan as the agency
to the government such as the management of public debt, management of foreign exchange,
advising the government on policy matters and maintaining close relationship with international
financial institutions. The State Bank of Pakistan also serves as the banker's clearing house. It
settles the mutual obligations of different commercial banks. If a difference exists, it is paid by a
cheque drawn on the banks accounts carried at the State Bank of Pakistan. It also has the
responsibility to replace worn-out and distorted bank-notes.
1.1.3. Gold standards
The Gold standard is a system in which the price of the national currency is measured in units of
gold bars and is kept constant by the daily buying and selling of base currency to other countries
and nationals.
Usually the issuance of currency notes rests under the authority of central bank of a country.
Therefore it has the power to influence the interest rates through the supply of money. If the
central bank tightens the supply the demand automatically for the money automatically goes up
and as a result the cost of money goes up. In the late nineteenth century, the issuance or the
supply was maintained according to the gold standards that are the equivalent gold reserves a
central bank had in its vault.
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1.1.4. Monetary Policy
Monetary policy is the process by which the central bank of a country controls the following in
order to achieve growth and stability of the economy.
(i) The supply of money
(ii) The availability of money
(iii) The cost of money or rate of interest,
Monetary policy is dependent on the relationship between the rates of interest in an economy,
that is the price at which money can be borrowed, and the total supply of money.
Monetary policy can either be
I. Expansionary monetary policy
Expansionary monetary policy is when the total supply of money is increased in the economy.
The purpose is to counteract unemployment in a recession by lowering interest rates. In an
expansionary monetary policy the increase in supply of money results in the fall of the demand
of money. When the value of money decreases the cost of borrowing goes down and hence the
interest rates go down. On the whole the businesses in the economy flourishes since they get an
added incentive and hence the growth in businesses makes room for employment again.
II. Contractionary monetary policy
Contractionary monetary policy decreases the total money supply. Contractionary policy
involves raising interest rates in order to combat inflation. In a contactionary policy, the supply
of money is reduced to increase the demand of money. Hence the value of money is controlled
since inflation decreases the value of money. As a result the cost of borrowing or the interest rate
increases. However this policy does not apply to all the economies, especially to most of the
developing countries.
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The "Prudential Regulations" imposed by the State Bank of Pakistan on the banks, besides
providing the credit and risk exposure limits, prescribe guide lines relating to classification of
short-term and long-term loan facilities. It also sets criteria for management, prohibit criminal
use of banking channels for the purpose of money laundering and other unlawful activities, lays
down rules for the payment of dividends, directs banks to refrain from window dressing and
prohibits them to extend fresh loans to defaulters of old loans. Effective December 1997, every
bank was required to maintain capital and unencumbered general reserves equivalent to 8 per
cent of its risk weighted assets.
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1.2. Introduction to reforms – need for reforms
Pakistan’s banking sector has evolved greatly in recent years compared to what it was in the last
decade. Attributed by recapitalization and prudent policies, banking in Pakistan not only gained
strength, respect and profitability but their deposit base increased, too. The growth is tremendous
and commendable but when compared to other regional economies; it’s not as satisfying.
The banking system, however flourished a lot, failed to diversify its services and have fewer
offerings. Given the stated scenario, the need of an evolving economy were not met at the level
required. The dynamism and potential of the country’s huge resources are not complemented
well by the current banking system.
The banking sector fails horribly in overseas banking; marked with a lower dynamism and lack
of skilled human resource. Besides their inability to diversify their services, an absence of
regulatory authority further deteriorates the trust of potential customers.
Banking has faced more problems in the shape of safety net problems than any other.
Government’s inability to generate more pools has limited the growth in the industry as
remittances are not invested in productive ventures. Overseas Pakistanis have been reluctant to
invest, given the current financial global situations. And a more daunting scenario in the
country’s upper belt for last few years further aggravates the conditions.
Given the need, government decided to take structural reforms in the banking sector. But a
change in macro-economic policies is inevitable to address the elements outside banking. Having
more ventures and industries in the country can force banking sector to evolve their services
which can eliminate the lack of dynamism in banking.
Banks charging rate and giving rate has distanced invariably as the charging rate remains to be in
double digits and giving rate to be in single-digits. A problem like one raise when people don’t
have ventures to invest in and they resort to banks at lower rates. Such exploitation can also be
addressed, if macro-policies results in more industries and hence more options.
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The current banking scenario leaves consumers unprotected as the banking literacy is still to
evolve. Banks are not challenged by any other industry which can pose any threat of soaking up
money out of the economy and to create any sort of competition for banks.
1.3. Consumer protection reforms
Consumer protection reforms were taken by SBP to accelerate the competition between the
banks. The banking sector improves its performances only when their financial literacy improves
as it helps bankers to design financial products to cater to the regional needs.
The financial literacy and lack of skilled bankers (human resource) has hampered the
competition greatly and so has resulted into a limited reach of the banks.
Only a couple of banks in the country have taken over the rural markets as they had better
network with more branches. SBP’s vision to improve competition addresses the insecurity a
consumer faces with lower options of banking and availing the services which are not as reliable
and dynamic.
Consumer protection in our economy has to do more than banking reforms. Our country faces
macro-economic problems as financial sector development and economic development are inter-
linked. Governments always strive for better living style of their people to safeguard their
interests by taking needed reforms. An efficient financial sector can ensure the growth required
by an economy to improve the living standards.
Financial sector plays vital role in a country’s growth, our financial sector mainly comprises of
banking sector, and estimated percentage is as high as 95 %. Hence an efficient banking sector
impacts directly on the financial sector and in turns on economic development.
As we move in details of the reforms taken and their impact on the economy, we, first, must
figure out why these reforms were needed and their relevance to the adversities of a common
man.
Banks few years ago only used to give services to the government rather most of them used to be
government owned banks. Governments in order to guard their political interests used to keep
these banks as national banks. And banks in return used to subsidize the fiscal deficits of the
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governments. Besides governments, these banks used to give services only to the big
organization. Whereas small and medium size organizations, housing loans and agriculture loans
used to get neglected, this in turn decreased the opportunity to create more employment and
effected badly the growth of the economy.
Hence, the middle-class which is considered as the bank bone of any economy was under-served
and to be so, legitimate reasons were apparent.
Starting with, the fiscal deficit, governments used to make; were subsidized by these banks and
in return banks used to charge enough interest to keep the system working, besides that these
loans were secured by governments, eliminating all the possibilities of being bad loans.
Secondly, government banks work 9-5 with low pressures on the employees, of any sort of work.
The staff hired used to be more than needed resulting into extra administrative costs and hence
lower profits for the depositors.
Thirdly, most of the loans offered had merits based on political interests which later used to be
bad loans. Percentages in 1990’s were as high as 25 %, this means 1 out of 4 borrowers used to
default resulting into bad loans and the effect trickles down on the profits, and depositors again
were on the losing side.
Fourthly, banking sector used to get taxed at around d 58 % which is extra ordinarily high thus
making the industry less attractive for the new entrants and hence never had any positive effect
on the competition.
In regard to the above factors, lending rates have to rise which makes lending expensive for a
middle-class borrower. These factors were hindering the progress of the economy and were
leaving no opportunities for the common man or a consumer to make any progress.
Our banking sector had to go through the transformation, which was lately appreciated by the
international bodies. IMF and The World Bank in a report published in 2004 seconded the
decision of taking structural reforms in banking. The reforms (details of which will be given later
in the document) resulted into a more private based banking sector which once used to be
government-dominated.
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State Bank of Pakistan had a role to play to keep the progress. State bank has four major roles to
play
• Maintaining price stability with growth
• Strengthening of the payment system
• Prudent management of the exchange
• Ensuring soundness of the financial system
SBP had a dual role to play. SBP regulated and supervised the reforms and had to advise
government with the future of the reforms. Several tiers of reforms took place to
comprehensively address the problems. SBP carried out diagnostic studies, identifies the
constraints, made plans to address the issues. In order to do so, SBP has to remain in alignment
with Government’s policies and international organization’s best practices. Monitoring the
progress and facilitating, the parties involved, was also taken cared by the SBP.
So far we have discussed the need and importance of reforms. We also talked about the banking
scenario and issues which were to be addressed by both financial and economic development and
role of SBP in bringing those reforms.
Now, we move forward to put some light on the salient features of these reforms which
eventually caters to the consumers. Following are the areas or entities which are either the
products of these reforms or are the prime focus of the reforms.
 Privatization of NCB’s ( National Commercial Banks)
Banks in early 1990’s were almost all government owned which in 2004 were limited to 20 %.
The only government bank has also floated its shares in stock markets. The liberalization
resulted into competition which increased the level of banking. Baking today is marked by
increased lending to common man, larger profits, less staff and consumer respect.
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 Corporate governance
Corporate governance to ensure control and transparency had to achieve in order to safeguard
depositors’’ money and resources. Proper regulation and enforcements of laws helped assuring
the integrity which is of vital importance to gain consumers’ interest.
 Capital requirements
Capital requirements of the banks has been increased to the adequate level to make them good
enough to meet unexpected shocks, to have a strong base and to compete well with the related
financial institutions.
 Consumer financing
Reforms also negated the restrictions on national commercial banks to give consumer loans
which resulted into the increase lending to a common man; hence increased opportunities for the
middle class to give themselves a chance to flourish.
The lending policies were revised to such levels where lending could be easy for a consumer.
Reforms positive effect on market helped not only the borrower but also has a multiplier effect n
the economy which also helped other industries to boost and to pose any competition to financial
sector.
 Mortgage financing
Banks were given incentives to actively provide mortgage loans. The upper limits were further
leveraged; tax- deductions on mortgage payments were reduced and in some cases were negated
entirely.
 Prudential regulations
Prudential regulations were revised to include SME financing and consumer financing along
with the existent highly focused corporate and business financing. These regulations were aimed
at including the specific interest of corporate and consumer financing in the banking services.
This also increased the scope of banking.
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 Micro financing and SME financing
To make banking more lucrative to the individuals, micro finance institutions were encouraged.
The requirements of setting up one such institution were relaxed to the extent where a bank can
only be city focused or town focused. The capital requirements were reduced to make the
initiation easy for these banks.
 Taxation and agriculture banks
Taxation on banks some years ago used to be 58% which was drastically high than other
industries. Reforms also had their impact in this difference whereas agriculture banks were
established as a result of the reforms to make banking approachable by the majority of the
country’s population which lives in rural areas. This not only helped the people in the areas but
also augmented the growth in the agriculture sector.
 Credit rating
Credit ratings requirement were imposed on all the banks which directs all the banks to get them
rated by the rating agencies. The purpose was to keep the consumer aware about the bank’s
strength and capacity to perform.
 Supervision and regulatory capacity
Supervision and regulation was further enhanced where banks were bound to intake only the
deserving , had to promote the employees on merits, not to take any political pressures when
comes to lending and to keep the services up to dated so that technology driven services can be
provided.
Reforms made banking easier for bankers and for consumers more affordable. Pakistan is
one of those very few countries where privatization occurred on such a large scale in a very short
time period. Loans were made easy and accessible for the poor through micro financing,
agriculture banks supported needy farmers to have their own earnings.
Mortgage financing made a common man to build his own house resulting into a need of raw-
materials and gave birth to the new needs of products and industries. Mortgage financing was
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made easier and affordable. Regulations to keep transparency and integrity also increased
resulting into increased consumer interest in banking.
SME financing helped addressing unemployment and created decentralized economy where
stakeholders are huge in number and not a few organizations are running the economy. The risk
of fragmentation in the economy also decreases as a few bankruptcies are not determining the
position of the economy.
1.4. Mohtasib
The term Mohtasib (or Ombudsman) has no singular definition. To understand what it means,
one must look into the different categories that have been established of it. For instance:
• Wafaqi Mohtasib
• Federal Tax Ombudsman
• Banking Mohtasib
However, if one was to generalize the meaning of Mohtasib, it would simply stand for
addressing the issues faced by public entities because of the government and proposing solutions
to them.
Over the course of time, from when the Mohtasib was established in Pakistan in 1983 to date,
there have been additions to the core of Mohtasib. From a generalized forum for solutions, it
became a more industry focused entity. Also it expanded from operating on the federal level to
the provincial level because of its initial success. This was where it became the Provincial
Ombudsman.
If we were to look into the technicalities of the Mohtasib, we would have to review its Charter.
This consists of the most important details of the Mohtasib and clarifies what exactly it stands
for. Some of the essential pointers are as follows:
• The aforementioned ‘government’ which poses problems for public entities comprises all
Federal Government agencies but not the Supreme Court, the Supreme Judicial Council,
the Federal Shariat Court or a High Court.
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• The ‘problems’ which the Federal Government create, can be further categorized as acts
which are:
o Not in accordance with the law
o Not in the interests of the public entity concerned
o Not based on anything concrete or relevant
o Misusing the power vested in them or not using them for the benefit of the public
entity concerned
o Hampering the performance of the public entity concerned because of lack of

efficiency on the part of the Federal Government
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1.4.1. Banking Mohtasib Pakistan
Recently Mr. Mansur-Ur-Rehman Khan has been appointed as Banking Ombudsman as per the
orders of the President of Pakistan. The responsibilities of the banking Mohtasib include, inter-
alia, formulation of Prudential Regulations on Know-Your Customers and other areas of Anti
Money Laundering, setting up of Financial Monitoring Unit for collection, analysis and
processing of Suspicious Transaction Reports (STRs) coordination with investigation agencies,
liaising with APG Sect. and other international groups on AML, and coordination with banks on
AML related issues and dealing with complaints of individuals against banks prior to creation of
Office of Banking Ombudsman.
1.4.2. Appeal Process
Although the State Bank of Pakistan encourages that all complaints must be lodged with the
Banking Mohtasib, it also is the only the appellate authority by law to outdo any decision made
by the Banking Mohtasib. The law provides the right of appeal both to the complainant and the
bank. If they feel that banking Mohtasib has been biased in any form and has favored any party.
1.4.2.1 Complainant's right of appeal
A complainant not satisfied with the decision of the Banking Mohtasib has the right to appeal to
the Governor, State Bank of Pakistan within 30 days from the date of the order of the Banking
Mohtasib. In case the complainant is dissatisfied with the decisions taken by the state bank and
the banking Mohtasib he/she has the right to file a case in the court of law and demand justice.
1.4.2.2. Bank's right of appeal
In case a bank is dissatisfied with the Banking Mohtasib's decision in reference to the complaint,
it may file an appeal with the Governor, State Bank of Pakistan within thirty days. However, if
no appeal is filed, or the State Bank of Pakistan does not advocate the demand, the Banking
Mohtasib's order shall be considered final, and regulated upon the bank.
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1.4.3. Procedure of filing the complaint
The banking Mohtasib is the main authority to whom the complaints need to be filed. The entire
complains are filed and operated by the banking Mohtasib’s office located in Karachi. The filing
of complaints involves the following three steps:
Step 1:
According to the procedure stated by the State bank of Pakistan, initially the complaint needs to
be filed to the bank in the form of a letter. The letter shall state that incase the problem is not
settled the complaint would be filed in the name of the Banking Mohtasib. The bank is bound to
settle the complaint in 45 days.
Step 2:
If the bank fails to reply within 45 days or give unsatisfactory decision, the complainant has the
right to file the complaint with the banking Mohtasib through a prescribed complaint form
available at the banking Mohtasib’s office and online.
Step 3:
It is mandatory that the complainant should duly fill the complaint form and get it attested by the
oath commissioner. The form shall then be attached with the complaint letter in the name of the
banking Mohtasib and sent to the Mohtasib’s office.
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1.4.4. Types of complaints handled by the Banking Mohtasib
a) Complaints can be filed in the name of banking Mohtasib against all the registered banks with
the State bank of Pakistan. Also disputes between two banks are also settled by the banking
Mohtasib.
b) All complaints rejected by banks can be entertained by the Banking Mohtasib provided the
records pertaining to the complaints are not destroyed by the bank in accordance to the record
destruction policies. Also it is necessary that a copy of all the related documents should be filed
with the complaint form to the Banking Mohtasib.
c) The Banking Mohtasib settles complaints relating to violation of banking laws and
regulations, unnecessary delays and inefficiency, poor service, biased actions, etc.
1.4.5. Complaint Redressal Procedure:
After the complaint has been referred to the Banking Mohtasib with all required documents the
investigation team of the department contacts and visits the bank to better understand the
complainant’s issues. If the complaint is found to be unjustified and fake the case is closed.
If the complaint is found to be genuine then the banking Mohtasib mediates to resolve the issue
through mutual consent. However, if the case cannot be solved through mutual consent and both
parties cannot reach to an agreement then the Mohtasib can either ask the bank to rectify its
operational procedures or it can issue an order to the bank to make good the complainant’s loss.
Also, if the Mohtasib feels suitable he may direct the bank to grant compensation to the
complainant for his hardship and the negligence of the bank.
The banking Mohtasib strives hard to resolve all complaints within 2 months. However, the
duration to resolve the issue depends upon the nature of the complaint and the documents
attached with the complaint form.
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1.4.6. Jurisdiction and Scope
The Banking Mohtasib is responsible to resolve complaints made by customers against banks
that are registered with the State bank of Pakistan. It also resolves inter-bank issues.
The banking Mohtasib arbitrates issues through mutual consent between the bank and
complainant. However, if the case is complicated or if it is out of the jurisdiction of the Mohtasib
than it can pass it to the State bank of Pakistan for further consideration or to the Government of
Pakistan’s law enforcing agencies.
The Mohtasib will also aid in amicable resolution of complaints after giving hearings, where
necessary, to the complainant and the concerned bank. The authority to grant compensation for
loss suffered and award of reasonable costs incurred by the complainant also lies with the
Banking Mohtasib. The Mohtasib may also suggest procedural improvements at banks so that
generalized systemic deficiencies are removed and the quality of service and the standards of
consumer satisfaction are improved. The Mohtasib can also make recommendation to the State
Bank of Pakistan in perspective of infringement of banking laws and regulations. It can urge The
State Bank of Pakistan to instigate an inquiry and take appropriate action against a bank which
found to be involved in the violation of the banking laws and regulations.
In order to ensure that the entire system is made effective and transparent The Banking Mohtasib
has also been given the authority to handle cases which involve malpractice, corruption and
deliberate negligence of duty by officers employed in public sector banks. If an officer is found
to be involved in such practices then the Banking Mohtasib can submit its inspection details to
the State Bank of Pakistan or the Government of Pakistan for actions. These actions can include
disciplinary action or even criminal prosecution.
It is most likely that the complainant and the bank will be satisfied with the decision of the
Banking Mohtasib. However, the constitution of Pakistan gives them the right to further appeal
to the Governor, state bank of Pakistan, if they are dissatisfied with the order of the ombudsman.
The aggrieved party has the right to appeal within 30 days of the order passed by the Banking
Mohtasib, if they fail to file the complain within this due time then the decision made by the
Banking Mohtasib is considered final and is effective.
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1.4.7. Manner of exercising the jurisdiction
The autonomy and power that has been granted to the Banking Mohtasib differ for public sector
and private sector banks.
In relation to all banks operating in Pakistan, the Banking Mohtasib has been empowered to
entertain complaints of the following nature:
• The Banking Mohtasib shall tackle all such cases in which banks have failed to act in
accordance with banking laws and regulations. This will include all policy directives or
guidelines that are issued by the State Bank of Pakistan from time to time.
• Cases which involve delays or fraud in relation to the imbursement or collection of
cheques, drafts or other banking instruments or transfer of funds.
• Cases of fraudulent or unauthorized withdrawals or debit entries in accounts.
• Cases where banks failed to provide services and obligations (e.g. letters of credit) to
exporters or importers.
• Complaints from holders of foreign currency accounts whether maintained by residents
or non-residents.
• Complaints relating to remittances to or from abroad.
• Complaints relating to payment of utility bills.
In respect of public sector banks, the Banking Mohtasib in addition to the foregoing authority,
will also entertain complaints pertaining to
• Cases of Corruption or malpractices by bank officers.

• Cases involving negligence of duties in dealing with customers and inordinate delays in
taking decisions
Banking Mohtasib has been given adequate powers to call for such information as would be
relevant for the disposal of complaints, receiving evidence on affidavit an issuing commission
for the examination of witnesses provided confidentiality is not infringed.
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1.4.8. Matters outside Banking Mohtasib authority
The Banking Mohtasib does not have the authority to direct the banks to provide excessive loans
to the complainant who fails to qualify the criteria mentioned by state bank of Pakistan.
Further, the Banking Mohtasib has no influence over a complaint against a bank's loan and mark-
up policies, risk policies, or charges of products and services and any other bank policy affair.
The Banking Mohtasib also reserves the right to subdue any complaints in reference to the cases
that are in trial with the state bank of Pakistan and also the cases which are under consideration
in the court of law. Also the cases for which the court of law has given the verdict are out of the
authority and decision of the banking Mohtasib.
1.5. The Problem
Banking sector has recently seen a drastic change; brought mainly by the State Bank of Pakistan.
SBP has since its inception been very active in keeping a strict check on the banking sector and
making sure that the financial sector performs as per the policy dictated by the SBP.
In the year 2000, the government decided to deregulate various sectors of the country and the
major deregulation took place in the telecommunication and banking sector, two major banks
were privatized. Since the competition arouse, the tendency of financial institutions to take
higher risks to earn more also rose which would have resulted into deterioration of consumer
protection. Hence SBP to protect its customers introduced several reforms in the year 2000.
Amongst the reforms was the Introduction of the Banking Mohtasib Department established to
safeguard the rights and interests of the consumers without any biasness.
• The research would analyze the Impact of the banking Mohtasib Department in residing
the complaints of the consumers.
• The numbers of complaints filed and redressed by the Banking Mohtasib Department
over the span of three years (2005-2007).
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1.6. Objective of the Study
The main objective of this study is to identify the impact of the Banking Mohtasib Pakistan. The
impact of the Banking Mohtasib Department would be measured through the various case
studies being published by Banking Mohtasib Department of SBP and the interviews
conducted with the banking officials.
1.7. Justification
SBP has always played a major role in establishing and strengthening the financial system of the
country. The main reason for conducting this research is to find out about the impact of the
banking Mohtasib Department and to establish the fact that measures are taken in order to ensure
that consumers in Pakistan are protected and are taken care off.
1.8. Scope of Research and Limitations
The scope of the research is limited to Karachi only. Also keeping in view the limitations we
have as far as time, cost and resources are concerned we have restricted ourselves to just the
consumer protection part of the reforms that deals with the Banking Mohtasib of Pakistan. In
order to have a deep insight of the Banking Mohtasib we plan to visit the Banking Mohtasib
Department to get Annual Reports and other useful data. Further more we also plan to visit some
banks and talk to the professionals in the industry about the impact of the Banking Mohtasib
Pakistan.
1.9. Assumptions
We assume that the data provided by the banking Mohtasib and other banks is true and
authentic. Also we assume that the Banking Mohtasib works in due favor of the complainants
without any biasness.
22
1.10. Definition of Key-Terms
1.10.1. Mohtasib (ombudsman)
An ombudsman is an official appointed by the President of Pakistan in a government department

to ensure that the best practices are implemented. The Ombudsman's role in the financial
industry is to resolve disputes through a process , where mediation is unsuccessful to propose a
basis for the settlement of a dispute.
1.10.2. Reforms
Reform means beneficial change, or sometimes, more specifically, reversion to a pure original
state. It includes all the key measures taken by the central bank to enhance financial principles in
the country’s banking operations.
1.10.3. Banking Mohtasib Department
The Banking Mohtasib Department acts as a trusted intermediary between the state bank and
some internal or external constituencies. It works as an autonomous body to safeguard the rights
and interests of the consumers and answer to there complains regarding banking problems.
23
2. Literature Review
2.1 Liberalization Policies- Why were they needed
According to Iimi (2004) it is believed that the banking sector should be liberalized and
deregulated to achieve economic efficiency, although in developing economies where credit
markets are very small and the financial sector is premature, policy oriented and specialized
banks tend to continue playing an essential role in the economy. Although it is unclear whether
public and private banks should have the same roles in financial development as elsewhere, this
paper looks into how to promote operational expansion, diversification and restructuring in the
Pakistani banking sector.
The main findings stated that although the Pakistani market showed economies of scale and
scope, they were diminished for large size banks; that there was a significant cost saving effect in
increasing the operational size of each category of financial services, except for demand deposits
and that banks can expect a cost advantage in providing several products simultaneously. It
further went on to state that as usually expected, nonperforming loans are a heavy burden for the
Pakistani banking industry and that private and state-owned banks may be varied in terms of
objectives and technology.
Many policy decisions could be made from the above findings: firstly the Pakistani banking
authority may be able to use the results to encourage small- and medium sized financial
institutions to combine and so prompt all banks into portfolio diversification, which will enhance
economies of scope on both overall and product-specific levels; as individual banks more greatly
concentrate their operations in particular areas, the reassignment of operations shall enable banks
to take more scale advantage in each area although the disadvantage would be a loss of
economies of scope resulting from diversification and increased market concentration, which
would raise another type of inefficiency (Iimi 2004). Another policy implication would be that
an independent financial system could be established only for deposit mobilization purposes
since cost complementarities between saving operations and the rest of banking services would
24
be less likely. Finally it would be notable to understand that state-owned financial institutions are
on average outperformed by privatized and private banks, thus it is necessary to improve these
institutions’ technical efficiencies through the above-mentioned restructuring measures.
This paper will look to find out how has consumer protection in the banking sector been
implemented, it will look to find out are consumers really protected by the current measures
taken the State Bank of Pakistan or are there more changes that need to be brought in so as to
ensure that the consumers associated with the banking sector has well protected.
However before we get to consumer protection we need to find out as to why it was of utmost
importance for the State Bank of Pakistan to formulate and implement consumer protection
strategies. The reason which we have established is based on the findings that we have collected
during the course of our research.
In the research that we conducted to find out the reasons for the implementations of the
consumer protection reforms we observed that they had been formulated for the banking sector.
The reforms were introduced in the year 2000 after the government decided to deregularize the
banking sector. This would mean that banks would essentially be operating in more of a free
market system and would be more liberal towards their operations thus risking the depositor’s
money.
25
2.2. Banking Sector Reforms in Pakistan- An Overview
Hussain (2005) states that reforms in the banking sector were needed in order to ensure the
economic development of the country. Further he explains the reasons for the introductions of
the reforms, the most important reason was that fiscal deficit was too high and banks were
making a lot of money by simply lending to the government as it was risk free investment with
high returns thus preventing economic growth. Next most of the banks were government owned
and had a very beaurcratic structure and bank staff was not competent at all, this resulted not
only in less profitability but also high administrative cost for the banking sector. Also as banks
were owned by the government, loans granted by the bank were not on merit basis but were on
political influence, this resulted in a loss rate of 25% which badly hampered the economy and the
banking sector. Lastly before the introduction of these reforms the banking sector was the most
heavily taxed sector of Pakistan at 58% tax rate per annum, this was higher than any other
corporate sector, as they went up to a maximum of 35% tax rate per annum.
It is for the above mentioned reasons that the annual interest rate was about 21%, as a result the
Pakistani market was not attractive for any investments and also it hampered the growth of the
financial sector. As the markup rate was high therefore it was nearly impossible even for the
middle class to get a loan thus creating a hurdle in overall growth of the country (Hussain 2005).
These factors were the cause of the introduction of the banking sector reforms, which paved way
for the economic and social development of the country. However as the government deregulated
the financial sector it left the banking consumers to be victimized as banks were allowed to use
its depositors money in a way it couldn’t use before. However the State Bank of Pakistan in
order to ensure that this doesn’t happen decided to increase and strengthen consumer (of banking
sector) protection laws.
As Stated in SBP’s Ten Year Strategy Paper (2006), the following Steps were taken in order to
ensure rapid improvement in customer service standards and consumer protection.
• Guidelines for timely and effective resolution of customers’ grievances were issued in
2004.
26
• An on-line complaint form was introduced in 2004 to give bank customers an easy and
convenient way of lodging complaints and seeking early problem resolution;
• A “Consumer Education” link was created on the SBP website to educate bank
customers on the complaint process and redressal mechanisms;
• The Office of Banking Mohtasib (OBM) established by law (BCO) and functioning since
2005 has been able to resolve a number of long outstanding complaints of bank
customers;
• Appeals against decisions of the OBM are handled by appeal committee constituted by
SBP;
• Prudential Regulations for Consumer Finance were in place since 2002 and they seek to
minimize consumer inconveniences;
• SBP started issuing half yearly review on “Complaint Redressal”, which analyzed the
type, pattern and trend of complaints and made recommendations on key operational and
policy issues;
• A Complaint Tracking System was introduced in 2006 to allow SBP to follow up on

complaints more efficiently;
• A new Consumer Protection Department was created in SBP in 2006 to allow more
focused attention to customers’ complaints and consumer protection, and to address
grievances in an efficient and timely manner (4,000-5,000 complaints were handled in
both 2006 and 2007).
27
• SBP has recently established Customer Facilitation Centers (CFCs) at the Consumer
Protection Department and all sixteen field offices of SBP Banking Services Corporation;
and
• Procedures for collection/recovery of debt have been streamlined, for which SBP has
issued minimum standards to be observed by Banks/DFIs in their efforts for
collection/recovery.
SBP’s Ten year strategy Paper (2006) further explains that after the introduction of the banking
reforms the banking supervision and regulatory capacity of the Central Bank has been
strengthened. In order to ensure high service standards it has made recruitment on the bases of
merit and competency and has ordered banks to award promotions on the basis of enhanced
knowledge and skills. SBP has also emphasized on values such as integrity, trust, teamwork as a
result of these changes, a structural transformation has been witnessed in the character of the
banking sector.
28
2.3. Effects of reforms on consumers
All these steps were taken to reduce the lending rate which would in turn not only benefit the
economy but also the lower income groups of the country who were not able to find any other
source of income except their monthly wages. (Hussain 2005). SBP’s goal was to ensure that it is
possible people belonging to the lower and the middle class were able to get loans (Home, Car,
and Business). This would ensure an overall growth of the economy.
In the research conducted by the SBP it was found that before the introduction of the consumers
reforms only 400,000 farmers used to get loans from the Agriculture Development Bank,
whereas now each year millions of farmers are been given loans through easy and convenient
repayment schedules (Hussain 2005).
Also the consumer base of people belonging to the low-income bracket has been growing at an
astonishing pace and has more than doubled during the last few years covering more than 2
million households in agriculture, SMEs, Microfinance, Credit Cards, Consumer loans, mortgage
and auto loans, etc (Hussain 2005).
29
2.4. Consumer Redressal through Banking Mohtasib Pakistan
With the induction of the banking sector reforms the State Bank of Pakistan aimed to achieve
two goals, one was to encourage the growth of the economy through opening doors to investment
in the Pakistani market by deregularizing the financial sector and bring down the annual markup
rate. The other was to improve the standard of living for the lower and the middle income groups
of the country.
However deregularizing the financial sector meant that banks would be more commercialized
and would more be focused on catering to the corporate world, and keeping in view the low level
of literacy and the general lack of awareness in the society, SBP had to make sure that the lower
and the middle income group didn’t suffer as a result of these changes. As a result along with the
step mentioned earlier in the report, SBP decided to establish a separate, independent body which
would ensure that the rights of the banking consumers are protected. This body was established
in the year 2005 by the name of Banking Mohtasib Pakistan.
The State Bank of Pakistan (SBP) in collaboration with the Banking Mohtasib is working to
augment the creation of the competitive culture at banks. SBP is ensuring a constant monitoring
on all scheduled banks in order to ensure high quality service standards and clear and transparent
bank operations so as to avoid fraud, theft and to assure that all customers are treated fairly.
The Banking Mohtasib’s most primitive purpose is to regulate good governance with in the
financial sector. It insures that public complaints against scheduled banks are investigated
through an impartial and transparent process.
30
2.5. Complaints
There are two types of complaints that can be registered with the Banking Mohtasib:
1. Formal Complaints
Registered after banks are unable to present solutions to customer problems.
2. Informal Complaints
Registered through letters, emails, on the phone or by individuals approaching the

banking Mohtasib themselves.
A few key things which should also be borne in mind regarding the banking Mohtasib are:
1. They can only satisfy complaints addressed directly to them and for which an oath has
been taken. All complaints sent to banks are void. They are liable to do this by law.
2. The duration for resolving conflict is a 3 month period.
3. The banking Mohtasib is responsible for ensuring that both customer and the bank have a
cordial and solution-oriented relationship.
4. All complaints need not be resolved as some lie outside the jurisdiction of the banking
Mohtasib, such as grant requests or regarding the bank’s policies.
Mentioned below are the registered complaints with the course of action taken by the banking
Mohtasib for the years 2005 – 2007.
31
2.5.1. Treatment of Complaints in the Year 2005
(B
anking Mohtasib Pakistan 2005, p.10)
• The total complaints numbered 594, averaging 75 a month.
• Of the 594, the rejected numbered 154, the declined numbered 130 and the granted
totaled 95.
• The total amount claimed was Rs. 22, 233, 706.
• The total amount granted was Rs. 14, 711, 283.
• The compensation granted was Rs. 981,827
• 215 complaints were pending, and hence, carried forward to the year 2006.
32
2.5.2. Treatment of Complaints in the Year 2006
(Banking Mohtasib Pakistan 2006, pg.13)
• The total complaints numbered 1005, averaging 84 a month.
totaled 290.
• The total amount claimed was Rs. 35, 652, 928.
• The total amount granted was Rs. 29, 033, 571.
• The compensation granted was Rs. 5, 664, 670
• 248 complaints were pending, and hence, carried forward to the year 2007.
33
2.5.3 Treatment of Complaints in the Year 2007
• The total complaints numbered 1580, averaging over 131 monthly.
totaled 349.
• The total amount claimed was Rs. 78, 471, 169
• The total amount granted was Rs. 53, 516, 038
• 450 complaints were pending at the end of the year.
• Out of the different categories for lodging complaints, 40% were of consumer products,
making it the most popular category of all.
34
Given that complaints began to get registered in 2005, it is understandable that in the first year of
operations the numbers were not reflective of the actual complaints that existed. A 12% increase
in the number of complaints took place only a year later. The year after, an increase of 56% took
place. This shows that as the years were passing, more entities were becoming aware of the
banking Mohtasib, and approaching it for customer solutions and conflict resolution.
35
2.6. Impact of the Banking Mohtasib Pakistan- Case Studies
Service cultures in businesses take times to evolve and the change in culture determines the
value of the business. Given the service nature of banking; culture plays a vital role in creating
the needed trust between the bank and the consumer. In order to achieve its goal of improving
service standards and creating a friendly environment in the banking sector the banking
Mohtasib, Pakistan continuously urges banks to enhance their service standards and also
monitors them.
Annual reports of the Banking Mohtasib over the years quote number of events insinuating on
the below par service culture in banks. Banking Mohtasib Pakistan (2007) quotes an incident
where the customer upon his inquiry at a bank branch about unknown withdraws from his
account was asked to go to the branches where the cheques were liquated. At his agony, one of
the branches accepted the negligence but the other branch refused to acknowledge that they were
unable to recognize the forged signatures which later when discovered had little resemblance to
the original signatures.
An instance reported in the annual report of Banking Mohtasib (2006) exemplifies the ignorance
practiced by the banks. A customer deposited a cheque for 2215/- (Australian dollars) which
were drawn on by a branch in Australia. The cheque was not credited to the account of the
depositor; upon inquiry the customer was told that the cheque is lost in the transit and the bank
had made countless efforts in the regard but has not been able to track the cheque. When
Banking Mohtasib took matter into the account and communicated with banking ombudsman in
Australia; it was told that the cheque was processed back in 2004 and was reported back to the
bank responsible in Pakistan. When all this was reported to the local bank and when the scrutiny
was done it appeared that the proceeds were received but were not addressed and the amount is
reported to be outstanding.
On November 28, 1989 under a court order, Rs. 50,000/ were deposited with a bank payable to
four orphaned minor sisters (the youngest of the sisters attained maturity age on June 6, 1995). In
June 1995, the liable bank asked for another Court Order authorizing release when approached
36
for payment. And when the Court Order was submitted in October 2005, the bank paid a profit of
Rs. 6,136/. The insufficient profit given for a 16 year period was protested but ignored by the
bank. A grievance was lodged with Banking Mohtasib on November 2005. After Banking
Mohtasib’s intervention, an amount of Rs. 22,194/ was given to the sisters as profit Banking
Mohtasib Pakistan (2005).
Banking Mohtasib Pakistan ensures that any case that has been registered with them is resolved
in such a way that it takes the least time. On May 14, 2005, a case was registered with Banking
Mohtasib Pakistan which reflects the efficient processing of the body. A customer claimed to
have handed in the ZAKAT declaration form to his bank but to no avail, ZAKAT was deducted
from his account on Oct 2004. The branch simply denied that it had never received the
declaration form and ignored the customer’s regard. After the case was registered the refund was
made on June 14, 2005(within a month), and Banking Mohtasib sanctioned Rs 3,750/ as
compensation to the complainant.
Banking Mohtasib makes sure that all the registered banks are fulfilling their duties. In mid
2005, a credit card holder personally handed over his credit card to a bank’s employee for
cancellation and obtained a receipt. In September 2005, the customer received the card invoice of
over Rs. 200,000/ which was not incurred by him. The bank was approached but declined to
refund the fraudulent transactions stating that the officer had since left and although the customer
delivered the card to the employee, he did not cut the card into two pieces. The customer was not
entertained by any means until a case was filed with Banking Mohtasib in May 2006. According
to Banking Mohtasib, the bank was clearly responsible for the fraudulent transaction conducted
by its employee and was made to bear the entire billing. In June 2006, the bank absorbed the
accumulated liability of Rs. 295,753/ Banking Mohtasib Pakistan (2006).
In another case where the customer’s point of view was ignored by a large foreign bank was in
2004. The bank received huge amounts of funds through a marketing campaign stating that it had
waived the penalties on premature encashment. However in 2005, when some of the depositors
wanted to prematurely cash their deposits, they were heavily penalized. In defense, the bank
stated that it had mentioned on the “ACCOUNTS TERMS AND CONDITIONS” that it had the
power to alter any condition unilaterally at any time. Banking Mohtasib accepted the rights of the
bank to change its terms and conditions but felt that the medium was unsatisfactory because
37
customers cannot be reasonably expected to minutely study the detailed contents. Thus the bank
should have informed the customers about the change in the charges and should have offered the
existing customers a period to Ancash their deposits as per the original contract terms (i.e.
without the new penalty). A total of Rs. 7,153,096 was ordered to be waived off by the Banking
Mohtasib.
38
3. Research Methodology
3.1 Research Design
We will be using Qualitative research procedures for this research. Our research will be a ‘direct’
type of qualitative research because the purpose of our research will be disclosed to our
respondents. Also interviews would be taken from personnel working in consumer banking
departments of various banks.
3.2 Procedure
The research will be carried out by following sequential steps:
1. Reading the available data will be done first- secondary research.

2. We’ll be approaching the seniors who have conducted their researches in the similar
fields which would help us a great deal.
3. Write research Proposal
4. In-depth interviews will be conducted at consumer banking departments of various banks.
5. Statistical analysis and interpretation of the information.
6. Evaluate that information against our objective of this study.
7. Write a research report to be presented on final day.
3.3 Measurement/Instrument selection
• Data Collection: Data collection would comprise of both primary and secondary data.
Secondary data will be extracted from a range of different literature available on sites and
libraries.
• Method of Data Collection: primary data will be collected by interviewing the concerned
personnel at banks. Furthermore the interviews would encompass other people as well
who are attached to the industry directly or indirectly.
39
3.4. Research Schedule
WEEK Plan of action

1. Area and Topic Selection
2. Topic finalizing and some literature review
3. Research Proposal development
4. Research Proposal Submission
5. Library search of state bank for collection of data
6. Questionnaire Designing and Introduction of the Report.
7. Interview with state bank official and Data Collection through
Structural questionnaires.
8. Literature Review Submission
9. Data Analysis and case study review
10. Data analysis using Software and Interpretations
11. Analysis Submission
12. Research Report Development
13. Report Review
14. Presenting the research and Final report submission
15&16 Final Presentation of the Research
40
4. Data analysis
The chart below shows the number of complaints received by different banks and their details as
to how they were taken cared.
YEAR Total Rejected Declined Granted PENDING

2005 594 154 130 96 214
2006 1005 253 214 290 248
2007 1580 559 222 349 450
Note: Data taken from annual reports of Banking Mohtasib Pakistan
An obvious trend in the chart is the increase in no. of complaints. Complaints registered and
brought forward in subsequent years have increased by almost 100% and 50%, in 2006 and
2007, respectively.
The ratio of rejected complaints to the ones been addressed or considered is low; which infers
that most of the complaints formally made were granted (resolved in favor of the complainant).
All the granted complaints entailed compensation to the customer and the value/amount of the
compensation is decided under the supervision of Banking Mohtasib.
41
The rejection of complaints took place on following reasons:
• Policy matters of banks
• Service procedures
• Request of grant or remission of loans
• Against non- scheduled banks
• Frauds
Above are the majors categories of such rejections, other reasons also exist.
Well the pattern and number of complaints in any of these years are different. But a little
observation shows that service procedures, request for loans or remissions of loans, and frauds
have been in concentration. This further entails a need for public awareness of banking
Mohtasib’s duties and their limitations of interference in the scheduled banks procedures and
workings.
Whereas these complaints though were rejected can also be used to surface a trend of what other
problems exists in the consumer base and can in future be inculcated in the banking Mohtasib’s
circle of considerations.
Pending complaints have a bigger ratio which calls for a probe into the schedule banking
procedures and an introduction of dedicated departments which can result in augmented
resolution processes in these banks. Other reasons like delays in recovery of consumer goods,
bad law and order resulting into delayed repossession of stolen goods and slow government
procedures where government departments are also involved, comes into play as well.
42
4.1. Complaints per branch received by banks in years 2005, 2006, and 2007.
Commercial banks in the country vary in sizes; some are region based, some are industry specific
( Zarai-Taraqiati bank) and some international banks(Bank of Tokyo Mitsubishi) which only
have a couple of branches as they are built in cities where most trade activities are held.
All the banks, except a few in all these years, received complaints regarding a range of matters.
Some of the issues falls under the jurisdiction of banking Mohtasib; others don’t which were out
righted by banking Mohtasib. Some of those issues are stipulated in the previous section.
In pages to follow a series of charts and accompanying tables give an overlook of banks and their
performances in three years from Banking Mohtasib’s inception. The banks are ranked each year
to base on the performance they have shown, some of them have shown great resilience as they
move down over the years; where as other showed a stubborn attitude and stuck to their positions
and defended their respective positions.
4.2. Banks Receiving Maximum complaints per branch
Banks in this section are ranked on the number of complaints they received while considering the
numbers of branches any bank is functioning with. Banks performances at their branches may
not be equally good but average has been taken to bring numbers at harmony with each other.
The first chart displays data for year 2005, which was the first working year of banking Mohtasib
Pakistan.
43
4.2.1. Number of Complaints Registered in Year 2005
Banks receiving maximum complaints per Complaint/

S.No branch – 2005 Total Branches Branch
1 Citibank 38 14 2.71
2 ABN 8 8 1.00
3 Bank of Tokyo Mitsubishi 1 1 1.00
4 SME 4 7 0.57
5 Standard Chartered 25 46 0.54
6 Union Bank 25 53 0.47
7 American Express 1 4 0.25
8 ZTBL 72 342 0.21
9 Crescent Comm. 3 16 0.19
10 IDBP 3 19 0.16

2005, 2006 &2007
Citibank tops the chart in year 2005 with a significant difference from the immediate successor
which is ABN, having a complaint each branch. Some of the biggest networks are not in the top
ten positions. Had the list been made based on the total number of complaints; the likelihood of
big banks to be in the list could have been higher as the total complaints received in big networks
are greater at any point in time.
It is interesting to note that, among the banks in the list, branches vary; and had the number of
branches been the reason for more complaints, some sort of trend would have been apparent in
the list as well. So, as per the performance of banks in year 2005, branches and networks don’t
really play any part in the performance.
44
4.2.2. Number of Complaints Registered in Year 2006.
In year 2006; total number of complaints registered with Banking Mohtasib Pakistan increased
by 100 percent. The probable reason is the awareness and accessibility of BMP; and credit goes
to the BMP as the awareness among the general public increased so rapidly. BMP has directed
banks to have BMP’s banners in the branches at visible fronts of branches.
Bank receiving maximum complaints per Complaint/

S.No branch - 2006 Total Branches Branch
1 Citibank 56 14 4.00
2 ABN AMRO Bank 16 8 2.00
3 SME Bank Ltd 9 7 1.29
4 Union Bank Ltd 62 53 1.17
5 Standard Chartered Bank 49 46 1.07
6 JS Bank 3 4 0.75
7 Bank Alfalah Ltd 30 97 0.31
8 The Punjab Provincial Co-operative Bank 48 158 0.30
9 Zarai Taraqiati Bank Ltd 91 342 0.27
10 Atlas Bank Ltd 1 4 0.25

2005, 2006 &2007
45
The data showed a very interesting trend, though the number of complaints rose by 100 percent,
as many as five banks remained in the top 10 list. Citibank remained to be at top and ABN to be
its successor almost showed a similar growth as to what the industry grew at. Well, Union Bank,
Standard Chartered Bank and SME are the other three banks which failed to decline the
complaints per branch ratio and again are visible at top ten.
46
4.3.3. Number of Complaints Registered in Year 2007
Banks receiving maximum complaints per Complaint/

S.No. branch - 2007 Total Branches Branch
1 Citibank 94 25 3.76
2 Standard Chartered Bank 168 124 1.35
3 SME Bank Ltd 19 17 1.12
4 Bank Alfalah Limited 73 194 0.38
5 ABN AMRO Bank 49 84 0.58
6 Zarai Taraqiati Bank 137 342 0.40
7 Askari Commercial Bank 45 124 0.36
8 The Punjab Provincial Co-operative Bank 37 158 0.23
9 Albaraka Islami 2 11 0.18
10 United Bank Ltd 192 1066 0.18
This year as many as 7 banks repeated the history; some for the second time and some for third.
Now that the third year data depicts similar group of banks showing lack of services and a drab
effort to improve the services by reducing complaints. A notion that bigger banks in terms of
branches fail more frequently, to provide quality service, than banks with fewer
branches
prove to be wrong. Here, the section concludes for per branch complaints data and gives no
specific reason for failure of banks to provide quality services. But a fact is apparent that most of
the banks are unable to adapt to a quality resolution of complaints, and a stricter action is
required by SBP to ensure that banks really crave for improvements and work well to reduce the
problems on hand.
47
4.3. Bank’s granting Complaints ratio.
This section shows the response of banks to the complaints; though the data shows that these
banks received complaints but the positive about these banks is that they were quick at resolving
the complaints.
Well, customers did have their part of agony and utter disgust but to further aggravate it by not
resolving them instantly, may take your customers away from you whom these banks never let
happened.
4.3.1. Number of Complaints Granted in Year 2005

Top 10 banks granting complaints - 2005
S.No Bank Received Granted Granted
1 ABN Amro Bank 8 3 38%
2 Allied Bank Ltd. 42 14 33%
3 Habib Bank Ltd. 78 16 21%
4 MCB Bank 54 10 19%
5 United Bank Ltd. 72 12 17%
6 Zaral Taragiati Bank 54 9 17%
7 Bank Alfalah Ltd. 13 2 15%
8 National Bank of Pakistan 100 15 15%
9 Standard Chartered Bank 25 3 12%
10 Union Bank 25 3 12%
Note: Data taken from annual reports of Banking Mohtasib Pakistan 2005,
ABN Amro showed its presence in the previous section too where in all three years it appeared
to be the most problematic bank; but its presence here gives a positive vibe that they are quick at
resolving and accepting their mistakes.
48

200
6 Bank Received Granted Granted
1 Punjab Provincial Cooperative Bank 48 33 69%
2 Allied Bank Ltd. 50 21 42%
3 National Bank of Pakistan 156 61 39%
4 Askari Commercial Bank 16 6 38%
5 My bank 8 3 38%
6 The Bank Of Punjab 14 5 36%
7 ABN AMRO Bank 16 5 31%
8 Habib Bank Ltd. 131 40 31%
9 Citi Bank 56 17 30%
10 MCB Bank 67 18 27%
Well, here we can see some of the big banks which were not really apparent in the previous
section but are showing their presence here which hints on the responsibility these banks take on
and their adherence to the best practices in the industry.
49

2007 Bank Received Granted Granted
1 Soneri bank 4 2 50%
2 First Women Bank 2 1 50%
3 Crescent Commercial Bank 2 1 50%
4 The Bank Of Khyber 5 2 40%
5 PPCB 37 13 35%
6 NBP 230 74 32%
7 SME Bank 19 6 32%
8 Citibank N.A 94 27 29%
9 The Bank of Punjab 33 9 27%
10 United Bank 192 50 26%
This year some of the small banks also ascended up in the top 10; showing their responsibility
towards the customers in resolving complaints instantly and compensating these complainants
accordingly.
50
s.n Name of the bank 2005 2006 2007
o
1 Citibank 2.71 4.00 3.76
2 ABN Amro 1.00 2.00 .58
3 Standard Chartered 0.54 1.07 1.35

Bank
4 SME 0.57 1.29 1.12
Well, the three years’ data brought up different banks hinting on the fact that almost all the banks
are complying with the customers’ grievances amid the creation o f Banking Mohtasib Pakistan.
The improvement can be attributed to the fact that Banking Mohtasib has been ranking banks
and floating the data in the market to assist customers with the selection of their banking service
provider.
Banks remained on top 10 list for maximum complaints per branch for three
consecutive years
51
These four banks showed an increase in complaints per branch. Well, for bnask like
these Banking Mohtasib has to take special measures to makesure that the trend
for these banks don’t remain this dissatisfactory. Recommendation regarding
collaboration with banks doing well can work out the issues for these banks too.
52
4.4. Analysis
The data acquired in the search comprises three annual reports, a few case studies and an
unstructured interview.
The data gives factual details based upon the realities on ground. Banking Mohtasib is
functioning since 2005 and the data for annual reports start from the very first year.
The data depicts a variety of aspects ranging from the number of complaints per branch for any
product to total number of complaints under a bank; talks about the rejection and recognition of
these complaints and also ranks commercial banks in terms of the complaints received and
addressed amicably and in a reconciliatory manner.
Banking Mohtasib’s creation entailed a theme of reconciliation and to see banks whether they are
complying to the standards and procedures; banking Mohtasib keeps a sharp eye on all the banks
so that no banks sneaks away with the unhandled and unresolved matters.
4.5. Interview with Mr. Raheel (NiB Bank)

As part of our analysis we conducted an interview with Mr. Raheel a representative of the
compliance department which deals with the banking Mohtasib Pakistan. According to Mr.
Raheel the banking Mohtasib Department is a separate entity and works without any biasness.
Mr.Raheel talks about a few instances where banking Mohtasib has been impressive in resolving
the matters pertaining to bad services. He quoted an incident which took place in 2007;
A leased car by the bank under the use of the consumer was subjected to an accident the
customer sent the car to the workshop and filed an insurance claim. The bank officials delayed
the claim and were negligent in assisting the consumer. During December the car became a
subject to the riots and the customer again filed an insurance claim but there was no satisfactory
response by the bank.
The consumer later filed a complaint against the bank to the banking Mohtasib who immediately
intervened and compensated the consumer. The entire case was resolved within 40 days and the
amount was compensated including a fine on the banks part to the consumer.
53
4.6. Interview with Ms. Aliya Raza (Customer Support Officer, JS Bank)
A customer of JS Bank deposited a cheque for clearing. The cheque bounced, however, due to
insufficient funds. This was not reported to the customer. 3 months later, after the customer
viewed his bank statement, he discovered that the funds had never been deposited. Enraged, he
contacted JS Bank but the requisite officials did not entertain him, let alone present a solution to
his problems. The customer contacted the Banking Mohtasib, who then contacted JS Bank to
resolve the issue at hand. A team was sent from Banking Mohtasib to the requisite branch, where
the conclusion they arrived at was that the customer would be compensated for the trouble he
was put through.
4.7. Case Studies

A Financial sector is usually premature in a developing economy. Therefore it is necessary for
the government to regulate the sector and insure a smooth progress of both the economy and the
sector. Similarly in Pakistan, Banking Mohtasib acts as a government regulating authority
working as a tool to ensure stable growth of the Pakistani economy. The main purpose of
Banking Mohtasib, Pakistan is to guarantee a cordial and solution-oriented relationship between
the customer and the bank.
Banking Mohtasib Pakistan ensures that whatever complaints that are lodged with them are
processed in the least possible time. In May 2005, a complaint was recorded regarding Zakat
deduction from the account. The case was hanging over for more than a year and both the parties
were unable to resolve. Banking Mohtasib Pakistan resolved this issue in less than a month after
it was informed. (Annual report 2005) Another swift treatment can be seen in 2006 when a
dissatisfied customer was charged Rs 200,000 on his credit card which he had already hand over
to the respective bank’s employee. The case was floating for more than a year until Banking
Mohtasib was informed in May 2006. Within a month (i.e. in June 2006) the bank absorbed the
accumulated liability of Rs 295,753/.
54
The banking Mohtasib ensures that any unfair conduct by the banks towards their customers is
compensated in the form of monetary terms to the complainant. Among the six case studies in
the annual report 2007, five of them directed the bank to pay additional sum of money as
compensation to the customers. Among the five case studies given in the annual report 2006,
three of them directed the bank to pay an additional amount which the bank was not liable.
Among the four case studies in the annual report 2005, two of them ordered the respective banks
to pay an additional amount as compensation to the complainant.
Banking Mohtasib Pakistan regulates the banking sector and therefore it stretches out to cover
that extra mile in order to ensure maximum customer satisfaction. In May 2005, a complaint was
lodged regarding Zakat deduction from the account. The banking Mohtasib investigation team
visited the respective branch and went through all the documents themselves till they located the
missing document from archives. (Annual report 2005). Similarly the team of Banking Mohtasib
went out of their way to solve a case registered in 2006. The pledged gold kept by the bank
against a loan was stolen in a bank robbery and later on recovered by the police. The case was
pending due to the slow process of the Sessions court while the customer was in need of the gold
ornament. Banking Mohtasib investigated the complicated issue and reached to a conclusion that
the bank should settle the case with the customer as soon as possible because the customer was
not liable to wait until the matters were cleared between the prosecutors, the Sessions court and
the insurance company.(annual report 2007). Another incidence was when the Banking Mohtasib
had to track down a cheque payment. It went to the collecting bank for the payment information
but the bank refused. Banking Mohtasib sought the assistance of SBP in order to track down the
wrong doing of the paying bank. After the evidence was found, the paying bank accepted its
negligence and thus the issue was solved after 10 years purely by the efforts of the Banking
Mohtasib (annual report 2007).
The banking Mohtasib team makes sure that any unjust treatment or inappropriate claims by the
bank are brought to justice. An instance reported by a customer whose account was not credited
by Australian $2214. Upon inquiry by Banking Mohtasib, it appeared that the proceeds were
received but not addressed due to irresponsible behavior while the amount was still treated as
outstanding (annual report 2007). Another incidence was when a person with salary of Rs
6000/month was wrongly accused of being an indemnifier for a person who has been unable to
55
repay his loan (Rs 573000). After Banking Mohtasib took the case, the bank admitted that the
document was fictitious which showed a fake claim of property of the person (annual report
2007). Similarly a credit card holder was accused for using his card which he already handed
over to the bank’s employee for cancellation 2 months ago. The bank was still unconvinced
although the employee had left the organization and admitted his guilt. On banking Mohtasib’s
intervention the bank was made to waive the amount charged on the card plus the interest
(annual report 2006). Likewise a major local bank was unable to refund the amount from the
Prime Minister’s National Debt Retirement Fund since it was not fully aware of the refund
process. Banking Mohtasib was again successful in achieving customer satisfaction (annual
report 2006). Another similar case occurred when a bank paid 1.7 million less on the grounds
that the deposit slip on which the principal was deposited was a P/L sharing account slip.
However after Banking Mohtasib intervened it was concluded that it was the officer who should
have informed the customer about the wrong slip and he should be the one who should be held
liable because he offered higher interest rates to the customer and did not informed the customer
before hand while the customer was filling the deposit receipt.
The banking Mohtasib team has not been time controlled. It has dug in very old complains and
processed it to ensure maximum consumer satisfaction keeping the banks point of view in mind
as well. A complaint was lodged in June, 2005 regarding a misplaced draft which was issued by
a bank’s Qatar branch and drawn on its Peshawar branch. The Peshawar branch was reportedly
asked for details of payment but failed to respond positively. The case was pending for more
than 13 years but was solved within a month after reporting (annual report, 2005). Another case
which was pending for more than 15 years was solved in 2005 when a foreign remittance from
Tokyo was not credited in the exporters account by a foreign bank in Karachi (annual report,
2005). Likewise a civil contractor who misplaced a government cheque that was crossed
“account payee” on January 22, 1998 was still unable to recover the amount. Banking Mohtasib
took the case and resolved it after nearly 10 years (annual report 2007). Another issue which was
unsettled for 11 years was solved within 6 months. The Banking Mohtasib team gave the
customer the luxury of getting out of a complicated matter and settling his account with the loan
obtained against the gold ornament which was kept as a security.
56
5. Conclusion
5.1. Conclusion
Banking Mohtasib has been successful to address the issues of complainants; the trend showed
that a need for one such entity did exist. Complaints received increased by 100% and 50 % in
years 2006 and 2007, respectively.
A constant improvement has been witnessed in the procedures adopted for addressing the issues
and Banking Mohtasib’s role has been detrimental to this improvement. We further observed that
consumers are getting aware about their rights but an intense effort is inevitable to bring in the
vast market which exists and requires adequate care. We have also seen commercial and national
banks responding appropriately to the Banking Mohtasib Pakistan and have been trying greatly
to improve the standards of business.
Besides the successful start of the entity what lies to heart of its successful operation is the
innovation in the services and procedures. In our recommendations we have stressed the need for
collaboration among banks and an active role of banking Mohtasib Pakistan in inculcating the
best practices of banking.
5.2. Recommendations
Banks should build separate departments for customer complaints. This department should be
responsible for re-addressing the issues faced by customers and providing workable solutions to
them. The bank should allocate a sufficient budget and amount of resources to this department.
This will the customer complaint department to be effective in its performance and solution
oriented in its approach. The aim should be to keep quality standards the same, if not higher, than
those stipulated by the Banking Mohtasib Pakistan.
Marketing campaigns can be used to make consumers aware of the Banking Mohtasib. Once this
awareness is prevalent, more marketing activities can be used to ensure that the consumers
remember what banking Mohtasib is and use it when necessary. Currently, banks are taking steps
57
to make the consumer aware of the banking Mohtasib. Each bank needs to have the banking
Mohtasib form and a poster explaining its role on their premises. However, this is a very limited
activity and it is only being done because the State Bank has imposed it. If commercial banks
don’t take these measures, they’re fined for it. Both the banking Mohtasib and commercial banks
should be increasing their efforts to make the consumer aware of the service they are providing
to the market.
Consumers should know the jurisdictions of banking Mohtasib. Creating awareness is one step;
ensuring the consumer has good knowledge about your service is another. Consumers are ready
to learn, provided the tools to do so exist. The banking Mohtasib can leverage itself more if
consumers understand how it operates. Better communication with them and more resources
(magazines; newsletters; seminars) to increase their understanding can be provided without
significant increase in costs. It must be understood that the investment here is increasing the
number of solutions by educating the consumer who reports the complaint in the first place.
Although commercial banks have reacted positively to the complaints issued against them (since
the inception of Banking Mohtasib Pakistan), certain banks are failing miserably to meet the
appropriate standards. Examples of these banks are agricultural banks and certain rural-region
based banks, which are know for their delayed redressal of complaints. Banking procedures in
these regions are not ethically profound. Complaints such as misbehavior with the consumers
and lack of pro-activity from bankers are common. These banks should be dealt with accordingly
as they are holding back the growth of entire industry. In comparison, the banks which are
performing better should be showcased and recognized for their efforts. The banking Mohtasib
can take the initiative to train bankers not performing well. Or banks doing well can be asked to
work in collaboration with the ones struggling.
58
References
Akhtar, Shamshad., (2006), Pakistan Banking Sector: The Need for Second Tier of Reforms,
Pakistan Banking Association, U.K, viewed 27 August, 2009,
http://sbp.org.pk/about/speech/governors/dr.shamshad/2006/Banking-Sector-Reforms-23-Dec-
06.pdf
Akhtar, Shamshad., (2007), Pakistan Banking Sector Reforms: Performance and Challenges,
Geneva, viewed 29 August, 2009,
http://sbp.org.pk/about/speech/governors/.../Banking-Reforms-01-Feb-07.pdf
Banking Mohtasib Pakistan, (2005) Annual Report 2005-2006. [Online] (updated)

Viewed 5th September 2009
Available at: http://www.bankingmohtasib.gov.pk/download/ar_2005_100.pdf

Viewed 28th September 2009

Viewed 5th October 2009
Danial, C. Hardy., (2001), Banking Reforms and Bank efficiency in Pakistan, IMF Working
Paper, no. 01/138, viewed 20 August, 2009,
https://imf.org/external/pubs/ft/wp/2001/wp01138.pdf
59
Hussain, Ishrat., (2005, )‘Banking sector reforms in Pakistan’, in Blue Chip – The
Business People’s Magazine, January 2008,
http://bis.org/review/r050203e.pdf
Iimi, Atsushi., (2004), ‘Banking Sector reforms in Pakistan: Economies of Scale and Scope and
Cost Complementarities’, Japan Bank for International Cooperation, Working paper no. 14,
viewed 12 August, 2009,
https://jbic.go.jp/en/en/research/report/working-paper/pdf/wp14_e.pdf
State Bank of Pakistan (2006), Banking Sector Reform--A Vision and Strategy for the Next 10
Years, Banking Surveillance Department, Circular No 8, viewed 17 September, 2009,
http://sbp.org.pk/bsd/10YearStrategyPaper.pdf
60

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Thesis Report

Impact of Consumer Redressal through Banking

1.1.3. Gold standards

(i) The supply of money

(ii) The availability of money

(iii) The cost of money or rate of interest,

Monetary policy can either be

I. Expansionary monetary policy

II. Contractionary monetary policy

1.3. Consumer protection reforms

• Maintaining price stability with growth

• Strengthening of the payment system

• Prudent management of the exchange

• Ensuring soundness of the financial system

 Privatization of NCB’s ( National Commercial Banks)

 Taxation and agriculture banks

 Supervision and regulatory capacity

• Federal Tax Ombudsman

o Not in accordance with the law

o Not in the interests of the public entity concerned

o Not based on anything concrete or relevant

o Hampering the performance of the public entity concerned because of lack of

1.4.2. Appeal Process

1.4.2.1 Complainant's right of appeal

1.4.2.2. Bank's right of appeal

1.4.5. Complaint Redressal Procedure:

• Cases of Corruption or malpractices by bank officers.

1.5. The Problem

1.8. Scope of Research and Limitations

1.10.1. Mohtasib (ombudsman)

An ombudsman is an official appointed by the President of Pakistan in a government department

1.10.3. Banking Mohtasib Department

2.1 Liberalization Policies- Why were they needed

• A Complaint Tracking System was introduced in 2006 to allow SBP to follow up on

Registered after banks are unable to present solutions to customer problems.

Registered through letters, emails, on the phone or by individuals approaching the

2. The duration for resolving conflict is a 3 month period.

• The total complaints numbered 594, averaging 75 a month.

• The total amount claimed was Rs. 22, 233, 706.

• The total amount granted was Rs. 14, 711, 283.

• The compensation granted was Rs. 981,827

(Banking Mohtasib Pakistan 2006, pg.13)

• The total complaints numbered 1005, averaging 84 a month.

• The total amount claimed was Rs. 35, 652, 928.

• The total amount granted was Rs. 29, 033, 571.

• The compensation granted was Rs. 5, 664, 670

(Banking Mohtasib Pakistan 2007, pg.17)

• The total complaints numbered 1580, averaging over 131 monthly.

• The total amount claimed was Rs. 78, 471, 169

• The total amount granted was Rs. 53, 516, 038

• 450 complaints were pending at the end of the year.

The research will be carried out by following sequential steps:

1. Reading the available data will be done first- secondary research.

3.3 Measurement/Instrument selection

WEEK Plan of action

YEAR Total Rejected Declined Granted PENDING

• Policy matters of banks

• Request of grant or remission of loans

• Against non- scheduled banks

4.2. Banks Receiving Maximum complaints per branch

Banks receiving maximum complaints per Complaint/

Note: Data taken from annual reports of Banking Mohtasib Pakistan

Bank receiving maximum complaints per Complaint/

Note: Data taken from annual reports of Banking Mohtasib Pakistan