Discussion on: A-1: Date- 20th December, 2010

A-2: Date - 21st December, 2010

Case No: 1 Sub: Relationship Marketing

Batch: 27th Semester : IV

Prime Bank: Serving the Customer?

Prime Bank is a classic case faced by most of the banking sector. The case illustrates issues of
service guarantee, service failure and service recovery.

D a t e : Monday 23 August 2004. Time 5.00 pm. Dr Ram Naresh Mehra, a B School Professor,
was in his office looking visibly tense and in a very pensive mood. He had just returned from
Prime Bank's Chennai office, where he has gone to foreclose

A personal loan which he had taken six months ago. He had taken with him a foreclosure
statement he had received that day itself from the bank's Pune branch, where he had originally
taken the loan. After a long wait at reception, he was told by the customer service executive that
since the foreclosure statement didn't carry any signature, it was in- valid. Ram was given
another statement levying 4% fore- closure charges amounting to approximately Rs7,000. Taken
aback, Ram protested and asked for an explanation about the discrepancy in the two foreclosure
statements generated by the same bank.

As the customer service executive could not answer his queries satisfactorily, she
directed Ram (on the latter's insistence) to a senior manager in the personal loan section. But the
manager was not available as he was out on an official business. Another bank official guided
Ram to a third person, Nagesh Rao, in the personal loan section. Ram narrated the whole story
and demanded that the original fore closure statement be honored and the discrepancy, if any, be
informed in writing to him and sorted out later.

Nagesh patiently heard out Ram but he too refused to accept payment on the basis of the
earlier foreclosure statement. However, he promised to gather the details of the case from Pune
branch and other concerned persons and get back to Ram next day. Left with no other choice,
Ram returned to his office. In the evening, mulling over the episode, he decided to wait until the
next afternoon before taking any steps.

When Nagesh failed to contact him, Ram called him in the afternoon to get an
update. Nagesh said he had yet to get a response from the Pune branch. Feeling let down, Ram
decided to write to the bank's CEO.

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24 August 2004
Shri PVR, CEO
Prime Bank Ltd, Mumbai

Sub: My experience with Prime Bank

Ref: My Personal Loan AC NO. LPPN
00002869

Dear Mr PVR,
With a deep sense of disappointment I am writing this mail to you as a first step to seek
justice for myself and also to put and end to a continuous ordeal at the hands of numerous
persons and systems associated with Prime Bank. Let me introduce myself to you first. I am
Ram Naresh Mehra, a member of Prime Bank family availing various services offered by this
institution for the last four years.

Last February I availed of a personal loan of Rs195,000/- (LPPN 00002869) from Pune
(where I was working with the National Institute of Management, Pune as a Faculty) for a
personal contingency. At the time of signing the agreement for this loan I was informed by the
DSA representative interacting with me that in case of foreclosure after six months I will have
to pay a foreclosure charge of 2% of outstanding as of date, which Ms Priya Dandekar of Prime
Bank Pune (Personal Loans) also confirmed in my telephonic conversation with her. I had
approached Prime Bank for this loan through Mr Qamar Rangoonwala, Branch Head of Prime
Bank's MG Road Branch in Pune, who in turn gave the reference to Ms Priya. The DSA
representative met me on Ms Priya's instructions.

In April I moved to Mumbai on a new assignment with another business school. Due to
this change of place I tried to get my address changed in the records of Prime Bank as well as
the auto debit mandate to a new account for continued repayment of my installments.
Subsequently I tried to get the address changed through the call center, which at that time
changed the address putting a condition that I have to submit a proof of address to the Race
Course Branch of the Prime Bank, Mumbai.

Upon visiting the branch on 26 May 2004, I contacted an officer (Ms Heeral Virani) who
collected a check (No. 648626, drawn on Prime Bank for EMI of June 2004 vide receipt No.
5174353), and also my request for auto debit through a new account with Prime Bank (Acc No.
DD4101265670) in Mumbai after initially refusing on grounds best known to her. After
customary hassle and a lot of persuasion on my part, she finally accepted my request.

In June I once again moved, to Chennai, to join the International School of Business on
a new assignment. I got my address changed again through the call center, but to my surprise
this time there was no request made for address proof and a customary branch visit.

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 My ordeal started when I went to the ATM to check my account and what I saw troubled
me. The Prime Bank had drawn one additional installment from my account in the month of
June using the auto debit facility despite the fact that for the month of June, I had already issued
the check and had specifically mentioned in the auto debit request form that the auto debit
should start from July 2004 (I have a copy of the debit form submitted to the bank).

Upon contacting the call center I could not get a satisfactory response as to why the bank
had drawn one additional installment from my account, and secondly, how it was possible that
when the auto debit instruction was to withdraw transfer money from 7 July, how could a
transfer be done before that? To me, it's a breach of trust on behalf of the institution.

The money withdrawn was refunded to my account after seven odd days but no penalty
was paid. I wonder if I delay my payment by seven odd days how much penalty the bank will
charge? Secondly, I still don't have an answer why this mistake happened and who was
responsible for it. Is there any accountability for errors which caused me great discomfort?
Excess withdrawal could easily have landed me in trouble had I issued new checks assuming a
particular balance in my account.

Startled by all this I decided to foreclose my account and that is when my ordeal
got compounded, and today I am feeling completely lost and hugely disappointed.

In the last week of July, I contacted the call center (at 9000137800) just to reconfirm the
procedure for foreclosure. I was told by a gentleman (whose name I can't recall) that I have to
put a request for foreclosure after the payment of six installments ie on 7 August 2004, and also
that I can put a telephonic request too. When I called again after 7 August 2004, surprisingly I
was told that it is not six installments but six months after the disbursal of the loan, which
makes it 13 August 2004 after which I can make this request.

When I verbally confronted the gentleman on the other side he feigned ignorance about
how some one from his side could tell me that a foreclosure request can be made after six
installments. Assuming the second call content to be true, I called again after 13 August 2004.
This time the third person said that actually the norm for foreclosure request is that it can be
made after payment of six installments.

Startled by inconsistent information disseminated by the bank's employees, I got my

request for a foreclosure registered (the request id was 90-54676678) and was told that the
foreclosure generally fetches prepayment charges of between 2% to 4% of the outstanding
principal, depending on the customer's track record of payment and other things at the discretion
of the bank. I was told that within fourteen days I will receive a foreclosure statement from the
bank after which I can go to the local branch and close the account.

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 I did receive a foreclosure statement couriered from Prime Bank Pune branch (I can
provide a copy of the same if needed) on 23 August 2004. I took this to the Chennai branch to
make the payment as outlined in the statement. After the customary wait, I was told by the
customer care officer that she did not consider the statement valid since it was not signed by any
one and produced another statement with various charges. When I tried to enquire about the
discrepancy between the two statements, the executive's response was to continue denying the
earlier foreclosure statement's validity as it was not signed.

As far as I am aware, I know of numerous communications from banks which are

in the form of computer generated print outs and are not signed, one such document in my
possession is the installment (amortization) schedule sent by Prime Bank to me. The question is
does a Prime Bank's employee have the right to declare the document valid or invalid at their
free will? Now I am in a real dilemma whether the numerous communications I have received
from various banks are really valid or not since they are computer generated?

My requests that the payment be taken as per the earlier foreclosure statement (dt
17.08.2004) and deficiencies, if any, be formally communicated drew a blank. The branch
personnel refused to take my payment or provide any satisfactory answer. I asked the customer
care officer to guide me to a higher authority. She asked me to meet Subroto. As the gentleman
was not there in the office, I was guided to meet another gentleman who in turn guided me to
another person named Nagesh Rao in the loan section, who I was told is the right person for
loan related queries.

I still fail to understand why I was first sent to some other person if he was not
the right person. Nagesh tried his level best and admitted to me that a personal loan does attract
a foreclosure charge of between 2% to 4% of the outstanding, and it was he who told me that in
my contract the foreclosure is 4%. This came as a rude shock to me as it was different to what
was told to me at the time of the agreement, as I have mentioned earlier. Nagesh also refused to
accept any payment on the basis of the earlier foreclosure statement citing similar arguments
such as not valid, wrong and so on.

After all this I called Prime Bank, Pune to talk to Ms Priya Dandekar and I got another
dose of shock when she simply refused to accept that she had mentioned a 2% foreclosure
charge and also disowned the foreclosure statement issued to me (ref 17 August 2004) saying
that it might have been done by "some one else" and the statement is invalid. She also insisted
that there is no 2% to 4% foreclosure charge band, and rather it is only 4%, which is not
consistent with what the guys in call center say, and what Nagesh Rao told me in Chennai.

I am completely lost. It seems to me that a charade is being performed to delay and

make me pay more and more by any means possible. I never imagined in my distant dream that

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employees of an organization of such repute would behave in a manner quite unbecoming of
even minimal professional standard. Circumstances compel me to even think negatively about
their integrity as they simply went back on their words, and harassed me to the best of their
ability. Telling lies, misinforming, refusing to own their mistakes, misguiding is all that I see in
my interactions. I only have a few questions to ask, but no answers from anyone whom I have
met.

All I want to do is pay back my loan as quickly as possible without any hassle and with
dignity. The delay caused is not my fault but as things stand, it is I who pays the penalty and
even face undue harassment.

Anticipating your attention and consideration,

Thanking you
With warm personal regards
Ram Naresh Mehra
(M) 999988833

Wednesday, 25 August 12.45 pm

Ram Naresh was in his office preparing a lecture when he got a call from Pramod Ekka,
Business Head, Personal Loans Division, Prime Bank. Though based in Bangalore, Pramod
called from New Delhi where he was on a business tour. The following conversation took place
between Ram Naresh and Pramod:

PE : Am I talking to Dr Mehra?

RNM : Yes. Who is this?

PE : Dr Mehra, good afternoon. This is Pramod Ekka, Business Head, Personal Loans
Division of Prime Bank. I have been forwarded your mail written to our CEO. Let me at the
outset express my deepest regrets over the episode and the difficulties caused to you. However,
I would like to assure you that it is not as if the bank has singled you out to harass you. There is
nothing personal in the whole affair.

RNM : (interrupting) I have just narrated in mail the facts! Nothing less, nothing more.
and yes, I sent the mail to get my concerns addressed. However, the fact of the matter is that
even today I have not been able to pay back my loan despite best of my efforts and willingness.
Who is responsible? I am paying interest on each passing day. I am told various versions each
time I meet or talk to someone from the bank. I am always being told stories and at best they are
confusing, conflicting and self serving. Just one example I can give you ……….

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PE : Dr Mehra, I appreciate that. Let me first ……….

RNM : NO! Let me complete first. I was telling you about the foreclosure charges. First,
I was told various versions on fore closure process, then I was told about a 2% charge when I
took loan, later I was issued a statement with 0% charge and when I go to pay I am told that I
have to cough up a 4% charge, otherwise they won't accept my payment and I end up paying for
the delay. Is this a sophisticated way of extracting more from clients?

PE : Absolutely not. Let me inform you that foreclosure charges have always been
4% for personal loans for a period of more than two years. No one, including me, has the power
to make it 0%. However, in your case as you say, since you have been promised 2%, we will
honor that. I am sending instructions to the Chennai branch, they will contact you, and you can
make payments accordingly. One more thing, we will not charge any interest since 23 August
2004, the day when you first went to the bank to make the payment.

RNM : This is fine, but what about the statement already issued, Sir. Is that valid or
invalid? And why did the executive refused to accept that in the first place?

PE : I haven't seen the statement's copy so I would not be able to comment. However,
we will work to sort this out. What do you want?

PE : Thank you Dr Mehra. If you still wish to continue the loan, we will be more than
happy to serve you.

RNM : No, the best way I can be served is to close the account as soon as possible. Bye
Mr Ekka and thanks for calling.

Ram Naresh had mixed feel- ings after the call. On one hand he felt placated by the
response to his mail, on the other hand, his anger grew because Pramod too tried to underplay
the problem, and skipped answers to more pointed questions. Nevertheless, Ram proceeded to
the bank's Chennai branch to pay the money. There he first met Nagesh who was more
courteous this time and asked Ram to make the final payment as per the foreclosure statement
first sent to him (with a 0% foreclosure charge).

Ram Naresh was surprised and told Nagesh about his conversation with Pramod who
had mentioned a 2% foreclosure charge. Ram asked Nagesh to be doubly sure as he wanted no
more hassles. He also called Subroto (Nagesh's superior) and told him every detail. Subroto
checked with Nagesh who told him that he had received a communication from headquarters
about settling the account at 0% and that he had an official communication in this regard.

Finally Ram Naresh made a payment with 0% foreclosure charges and interest up to 23

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August 2004. Before leaving, Ram went to meet Subroto and enquired about the refund of his
post-dated checks and a no-dues certificate from the bank. Ram was told that he would
positively receive both in seven days.

On his way back home, Ram wondered whether the bank had really viewed his case in
the right perspective. Pramod had told him to settle the loan at 2% foreclosure charges yet
another part of the bank had sanctioned a settlement at 0% charges. Had the bank really fixed
accountability for the issues raised in his mail?

Friday, 3 September 6.17 pm

A few days later, Ram Naresh received another email from Shaina.

Dear Dr Mehra,
This refers to letter mail dated 27 August 2004 regarding your experiences with regards
to your personal loan account. We deeply regret the anxiety that these incidents have caused
you.

The June 2004 EMI was debited from your savings account, despite receiving your
payment towards the same. We acknowledge that this was due to an inadvertent error at our end.

We regret that the information about foreclosure provided to you by our officials at
phone banking was contradictory. Corrective feedback has been given to the officials concerned
to ensure that such instances do not recur. We focus considerable effort on training our staff to
ensure high levels of service and we shall further strengthen our initiatives in this direction,
based on your feedback.

It is unfortunate that your experience at our Chennai branch was not satisfactory at the
time of foreclosure of loan. While there is no excuse for what happened, we are grateful to you
for bringing this occurrence to our attention and appreciate your patience in settling this matter.
We have sent across a gift to you as a small token of our appreciation. We request you to kindly
accept the same.
We once again sincerely apologize for the inconvenience caused to you.
With regards,
Shaina Mitra
Friday, 3 September 6.33 pm

Almost ten day after Ram Naresh closed the account, he received the no-dues certificate. In fact
he received three no-dues certificates: two issued from the bank's Mumbai branch and one from
the Chennai branch. However, the bank did not return the post-dated checks submitted by him at
the time of the loan disbursal. Ram emailed Subroto and Nagesh acknowledging the certificates,

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and raising the non refund of the checks issue.

Dear Subroto / Nagesh,

This is in reference to the foreclosure of my personal loan Acc No. 00001896224. I have
received a no-dues certificate from Prime Bank, Mumbai. However, I have not received my
security post-dated checks (eight PDCs) drawn on Kalupur Commercial Cooperative Bank,
Pune, each of an amount approximately equivalent to six installments (approx Rs34,000) ie 6 x
Rs5,727.

As far as I am aware I should get back my PDCs also. I earnestly request you to expedite
the matter and arrange to return my checks asap. Regards, RNM

Subroto immediately emailed back:

From: SUBROTO
Friday, 3 September 2004 7:10 PM
To: RNM
Sir, Will check and revert asap.
Regards, Subroto,
ASM - Personal Loans, RAPG

Acknowledging Subroto's promptness, Ram Naresh emailed back:

From: RNM
Sent: Friday Sunday, 5 September 2004. 6.28 pm
To: SUBROTO
Thanks, Subroto. I will be waiting.
RNM

When ten days had elapsed with no further contact, nor any sign of the PDCs, Ram Naresh
reminded Subroto again about the issue.
From: RNM
Sent: Tuesday, 14 September 2004.
1.29 pm
To: SUBROTO

Dear Subroto,
This is my last mail pertaining to the issue of foreclosure of my loan and non-receipt of
PDCs. I am disappointed at the kind of responses I am getting since last two weeks. Just to
remind you and recall the whole sequence, I wrote you a mail on 3 September 2004 informing
you about receipt of a no-dues certificate and non-receipt of the PDCs. You responded to the

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mail immediately saying that you will revert back ASAP. As I haven't heard anything so, I shot a
reminder mail to you on 13 September 2004 (exactly ten days later!), to which you again
forwarded to some persons with an instruction similar to the first one.

I do not know what is going on at your end which takes more than ten days to just let me
know what the problem is and also I am completely in the dark about whether I will be getting
back my PDCs or not? I leave it to you to judge whether I am right in feeling aggrieved in the
light of all these developments despite the prior developments which you are well aware of.
Best wishes, RNM

Monday, 20 September 4.51 pm

Subroto called Ram Naresh the very next day with assurances that he has taken up the matter on
an urgent basis, that there will be immediate action, and also that Ram will get feedback by the
evening. In the evening someone called on behalf of Subroto to inform Ram that he will receive
his checks in two days time as they will be dispatched the next morning. After Ram got his
checks back on 20 September 2004, he emailed Subroto and Shaina.

Dear Subroto
Thanks for your help off late. I have received my PDCs today afternoon.

Thanks once again.

Ram Naresh

Dear Ms Mitra,
Thanks for your response (dt. 3 Sept 2004) to my mail (dt 27 August 2004). I took time
to respond to your mail since I was still battling (literally) to complete the closure process.
Today I got my PDCs back after almost four weeks since I gave the check for foreclosure. I am
also attaching my communication to Mr Subroto Nath for your perusal.

As far as accepting the gift I am to get as per your mail (though I am yet to receive any
such gift), I am not sure whether I have done anything to be gifted. My plea is, if it has not been
sent, then I may be excused.

Since my present loan account is closed now and I still continue my relationship with
Prime Bank as a savings account holder, I can just hope and pray that similar inconveniences
and disappointments do not occur in future.

My experience has been that since I wrote the first mail to the CEO on 24 August 2004, I
am still to see a perceptible change at least in my interactions with the bank till date. Thanking
you for your help and concern,

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With best regards, Ram Naresh

Your question:
This case illustrates issues of service guarantee, service failure and service recovery. Clearly
identify the problem areas, common managerial dilemmas and customer contradictions.

From CRM angle:-

Relate the concept of Six Stage relationship model
Value- Vs Value proposition.

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