RBI introduces Internal Ombudsman Scheme for stronger redressal of banks' customer complaints

The Reserve Bank of India (RBI) has directed banks with over 10 outlets to appoint an internal ombudsman to enhance their complaint redressal mechanism.

“All Scheduled Commercial Banks in India having more than ten banking outlets (excluding Regional Rural Banks), are required to appoint Internal Ombudsman (IO) in their banks. The IO shall, inter alia, examine customer complaints which are in the nature of deficiency in service on the part of the bank, (including those on the grounds of complaints listed in Clause 8 of the Banking Ombudsman Scheme, 2006) that are partly or wholly rejected by the bank,” RBI said in a statement on its website.

In May 2015, the central bank had advised all public sector and select private and foreign banks to appoint Internal Ombudsman (IO) as an independent authority to review complaints that were partially or wholly rejected by the respective banks.

“As the banks shall internally escalate all complaints, which are not fully redressed to their respective IOs before conveying the final decision to the complainant, the customers of banks need not approach the IO directly,” the central bank’s statement said.

Ombudsman schemes in the financial sector, particularly in banking, are seen as the mainstay of grievance redressal for customers.

The IO mechanism was set up with a view to strengthen the internal grievance redressal system of banks and ensure the complaints of the customers are redressed at the level of the bank itself. The redressal would be by an authority placed at the highest level of the bank’s grievance redressal mechanism so as to also minimise the need for the customers to approach other fora for redressal.

The implementation of IO Scheme, 2018 will be monitored by the bank’s internal audit mechanism apart from regulatory oversight by RBI.

The Scheme covers appointment/tenure, roles, and responsibilities, procedural guidelines and oversight mechanism for the IO, among other things.

As a part of this customer-centric approach to enhance the independence of the IO while simultaneously strengthening the monitoring system over the functioning of the IO mechanism, RBI has reviewed the arrangement and issued revised directions under the Banking Regulation Act

In its annual report 2017-18, RBI has also pointed out that this year will also see the gaining of traction of initiatives for consumer protection in the area of financial transactions, especially by leveraging on technology.

Among them, the ombudsman scheme for redressal of complaints related to NBFCs (non-banking financial companies)  and a separate Ombudsman
for digital transactions is being looked at.

The grievances relating to the digital mode of financial transactions accounted for 19 percent of total complaints during 2016-17. This has gone up to 28 percent till end-June 2018, particularly with the inclusion of deficiencies in mobile banking service.