Considering the central bank’s concern over advertisements providing distorted information or sending wrong signals, the Indian Banks’ Association (IBA) has drafted a code of self regulation for its members.
As per the Reserve Bank of India’s (RBI) recent communication, to ensure market discipline, IBA would have to monitor how far its members are complying with the code.
RBI had advised banks to review the extant instructions in the light of the improvements in transparency and disclosure standards brought about in the system in the past 3-4 years.
According to IBA sources, the codes aim at setting ethical standards to ensure that the public form an informed decision/ opinion about any member bank. The code of conduct would cover advertisements through print and electronic media and pamphlets, brochures used as publicity material. IBA’s managing committee, at its recent meeting, has given its approval for the code.
As per the code of conduct, banks would have to take out performance details highlighted in public advertisements from published financial statements and disclosures made therein.
Awards, ratings, rankings given by outside agencies, financial dailies, journals and magazines would be projected in the advertisements, only if they are given by reputed agencies and publishing houses with a national standing.
IBA has made it clear that awards, ratings and rankings given by outside agencies, financial dailies, journals, magazines and publishing houses with highly localised and regional operations would not be used for public advertisements, covering all parts of the country.
To the extent possible, the banks would have to give details of the selection process and parameters used by the bodies giving awards, ratings and rankings in the advertisements for the information of the public.
“In a competitive environment, highlighting achievements in advertisements by banks are not uncommon. Thus creating a level-playing field for banks in this regard, merits consideration. At the same time, the regulatory concern that the advertisements may provide distorted information or send wrong signals, which are not in the interests of the depositors, needs to be addressed,” RBI said.
According to RBI, one option is to allow banks to bring out such advertisements but with an element of self regulation.
RBI recalled that several banks had been publicising ratings and rankings given by financial dailies, journals and magazinesin their advertisements. An analysis of these ratings revealed wide divergence as regards rating methodologies employed and financial parameters considered, leading to different ratings by different agencies.
Since such ratings were not found to be comparable across different rating models and the validity of such ratings was questionable, banks were advised by RBI in January 2000 to desist from highlighting them in public advertisements.
“The rationale underlying the prohibition of ratings was the possibility that the bank’s customers could be misled by the widespread dissemination of the same,” RBI said.
However, RBI added that with greater transparency and disclosure standards, the banking environment has improved significantly, since the time these instructions were issued.
RBI asserted that today, people are generally in a far better position to arrive at an informed decision/ opinion about a bank, and the chances of their getting swayed through promotional advertisements are comparatively lesser.
“Hence, it is considered that our extant instructions on public advertisements warrant a review, especially when several areas of banks’ operations have been deregulated,” RBI concluded.