Over the past few weeks, I have experienced frustration in the extreme as I have tried to open a bank account.  You would think that it would be fairly straightforward.  I am a foreign national, but I am employed by an Indian organisation, being paid regularly in rupees, living in Delhi.  I need a bank account so that I can receive my salary and pay my rent, just like everyone else.  I am not looking for anything fancy, and I am not (sadly) even talking about large sums of money.  I just need a basic bank account.

It has now been two months, and I still do not have the account.  I have two salary cheques, neither of which have been cashed or deposited, because I do not have an account.  I am drawing off my savings, hoping that HFDC bank gets its act together before my foreign funds dry up.  It is unclear whether that will happen.

The process has been utterly ridiculous.  Of course, there is a ton of paperwork – verification of my residency (which is a whole other complicated, bureaucratic process), verification of my employment, verification of my salary, passport photos, copies of my passport, copies of my visa, so many signatures that I have lost track – but the major impediment has had nothing to do with paperwork.  No, the problem with this whole process has been people, and a system that is completely unresponsive to the demands of consumers.

I chose to use HFDC because it is the bank with which my organisation does its banking.  They sent a very nice man to the office – our “relationship manager” – who told me that it would be no problem opening the account.  Of course, the fact that I was a foreign national made it a little bit complicated, but only a little bit and he would take care of it all.  I asked lots of questions, got the answers I wanted, and left encouraged by his assurances that it would all be taken care of soon.  I was duped.

Over the intervening six or seven weeks, the very nice “relationship manager” has revealed his true colours.  He is always pleasant and full of assurances that my bank account will be set up very soon, but he has also stopped returning phone calls, often does not answer at all, does not show up at the office when he says he will, and has ceased to make any progress on opening my account.

Finally, last week, I spoke to his manager, informed him that I had lost all confidence in this individual, and asked for someone else to handle my account.  HDFC seemed a bit confused by this, but did indeed send someone else and things seem to be moving.  We’ll see.

The problem is that neither this relationship manager nor the bank as a whole is very concerned about losing my business.  They know that it’s difficult for a foreigner to open a bank account in India, so they rightly calculate that it is not easy for me to move to a different bank.  I have actually explored that option, and if the process weren’t so complicated, I would have opened an account elsewhere.  However, at least with HDFC my employer has a relationship.  That helps in cutting through red tape.  Anywhere else, the red tape might make the process near impossible.

But that leads to another question.  There are lots of foreigners in India, and we all need access to banking services.  There’s clearly a market for foreigner-friendly accounts.  Why is no one offering them?

The answer is to be found in government regulations.  The Reserve Bank of India imposes regulations on my bank account through the Foreign Exchange Management (Deposit) Regulations, 2000.  It is pages and pages of rules about what the bank can and cannot offer me, what sorts of funds can be accepted into my account, how I can take those funds back out again, who is eligible, what will be the interest rate, etc.  All of this makes it difficult for a bank that wants to create an account for me to do so.

I question why the government needs to be involved in regulating this.  The bank can assess whether I’m a good risk or not.  They can see that I’m employed by an employer they have worked with for years and therefore know and trust.  They can assess whether they should give me a bank account, what kind, and with what conditions.  After all, they’re a bank.  This is the business they know best.  HDFC has grown large and successful because they know how to run a bank and have done so successfully for years.  The same is true of all the other big banks in India.  Yet all of them find their activities limited by what the government, with no experience of banking, thinks is important.

And that creates the situation in which I find myself with HFDC.  Since every bank is limited by the same regulations, HDFC knows that no bank will offer me an account any better than they’re offering.  They know that every bank will require tons of paperwork from me and that the process will be slow.  They know that, while it is possible for me to open an account with another bank, I’ll be caught up in as much red tape there as I am with HDFC, but minus the advantage of an established relationship with my employer.  All of those things reduce their incentives to be responsive to my needs as a customer.

I am unhappy, but not surprised, by the lack of customer service I have found at HDFC.  Government regulation almost always leads to this kind of outcome.  Free markets, on the other hand, let bankers be bankers, allow them to make decisions about what is good business, and create situations where there is an incentive to be responsive to the needs of customers.  A freer market would make it easier for me to move to a different bank, which would mean my “relationship manager” would need to try to keep me happy.  He’d need to respond to my calls and provide the service he promised.  He would also be free to make the decisions he thought were best for his bank without having his options limited by the regulations.  It would be better for the bank and it would be better for those wishing to open accounts.  Everyone would benefit.

Well, everyone except the bureaucrats writing the regulations, who would find themselves out of jobs.  I think that improving the banking system for all would be worth that price.

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The opinions expressed in this essay are those of the authors. They do not purport to reflect the opinions or views of CCS.