The Banking Ombudsman Scheme

Introduction:

While the banking sector plays an extremely influential and all-pervasive role in the life of an ordinary citizen, the technicalities and nuances involved in its functioning may often render these consumers incapable of proper redressal upon any issues they may have. It was in light of this issue that the Banking Ombudsman Scheme was introduced in various parts of the world. These Ombudsmen are officially appointed by the Government to function as middlemen in the grievance redressal sought by the consumers. While retaining their authority from the State, they may function with a certain degree of autonomy, while mediating conflicts and resolving complaints. The Financial Ombudsman Service in the United Kingdom and Australia are initiatives similar to the one implemented in India, that aim to provide externally aided dispute resolution services to consumers relating to banking sector issues. While operating upon a similar principle, the FOS Schemes in these two countries provide the customers with a wider scope of redressal than the one in India, as complaints can be lodged within six years of financial loss incurred by the complainant, as opposed to the one year stipulated under the Banking Ombudsman Scheme in India. 

The Banking Ombudsman in India is a quasi-judicial body, introduced to facilitate dispute resolution for the benefit of the consumers. It is essentially, a dispute resolution mechanism introduced for customers who may be dissatisfied by the redressal provided by the financial institution or if the institution fails to correspond within 30 days. The body deals with issues relating to non-compliance of rules and regulations and other complaints, in relation to the entities governed by the Reserve Bank of India. The Scheme was introduced by the Reserve bank of India in accordance with the provisions of Section 35A of the Banking Regulation Act, 1949 and Section 45L of the Reserve Bank of India Act, 1934. The Scheme encompasses under its ambit, various tiers of banking facilities such as Commercial Banks, Regional and Rural Banks as well as Urban Cooperative and Non-Cooperative Banks. 

Functions

The Ombudsman Scheme introduced in 1995 remained operational till the year 2002, after which the 2006 Scheme superseded it with certain newer and nuanced initiatives brought forth. The ombudsmen have, since the year 2006, dealt with nearly 36,000 complaints and there are nearly 22 regional offices operating at the local level in India, with the latest ones introduced in Jammu and Raipur. The nature and scope of the issues that the Ombudsman deal with entail, but are not limited to, the following:

• Non-payment or unexplained delay in the payment or collection of cheques and bills. 
• Non-observance of the directives prescribed by the Reserve Bank of India, regarding the applicable rate of interest on deposits,
• Refusal to open deposit accounts, accept payments or render any other such essential services, without explicitly acknowledging the reasons for the same,
• Subsequently, unexplained closure of such an account without any valid reasoning,
• Any deficiency in providing the requisite facilities in respect to loans and other financial services, 
• Not adhering to the prescribed set of rules and regulations of conduct,

Further, any other issues that may arise in the functioning of the banking services, that curtail the rights of the consumers as provided by the RBI, are overlooked and duly resolved by the appointed Ombudsman. The Banking Ombudsman may also carry out other essential functions in accordance with the directions provided by the RBI. The Ombudsman may also place certain contingencies upon the admission of such complaints. First and foremost, the complaint must be lodged before the concerned Banking facility before approaching the Ombudsman, and if the issue remains unresolved after the same, the initiative can be brought to use. Further, the complaint so made before the Banking ombudsman must be within one year and one month from the date of receipt of the reply from the concerned banking facility. The subject matter of complaint must not be pending before another forum, and should not have been dealt with at another authoritative body. The Banking Ombudsman discourages lodging of complaints relating to issues or problems that have previously been dealt with by the authority, as it frivolously increases the pendency of cases to be heard. Lastly, any trivial or irrelevant issues may be dismissed based upon the discretion of the Ombudsman themselves. 

Other Initiatives

The Ombudsman Scheme for Non-Financial Companies, 2018 aims to bring under the ambit of these Ombudsmen the Non-Banking Financial Company (NBFC) with asset sizes less than Rs 100 crore, as well as all deposits taking NBFCs. It provides that complaints may be lodged by the customers if there is any delay in duly releasing documents as well as pertaining to any failure to ensure transparency in the loan process. It also provides a mechanism for the complainant to file an appeal before the Deputy Governor of RBI, if dissatisfied with the verdict, given that such a decision by the Ombudsman is appealable in the first place. The body also ensures that the financial institutions are upholding the Fair Practices Code and may hold them accountable for a lack thereof. The proceedings of this body aim to provide conciliation between the parties, but in case that does not come about, awards or monetary compensations may be decided upon to settle the matter. The contingencies as mentioned in the 2006 Scheme also apply here, and hence, the financial institution concerned must be duly notified of the complaint and any complaints lodged post the period of a month from the answer of grievances by the requisite institution cannot be entertained. Under the Alternate dispute Resolution mechanism, the complainants are allowed to approach any other authorities or bodies to assist the mediation process if required. 

Further, The Ombudsman Scheme for Digital Transactions, introduced in 2019, is another initiative to overlook the complaints specifically dealing with digital transactions undertaken by the customers. The Scheme was introduced under Section 18 of the Payment and Settlements Systems Act of 2007 and came into effect on January 31, 2019. Under this scheme, complaints relating to issues such as payment failures on online modes and unauthorized fund transfers will be entertained. Nearly 21 Ombudsmen were set up across the country ensuring that both the regional and overarching issues are all adequately addressed. The Scheme has a narrower scope of complainants it can address, owing to the specific nature of its work, and hence, the Ombudsman may upon its, discretion, dismiss complaints on the following grounds:

• If the System Participant concerned in the complaint is not covered under the scope of the scheme or has not been duly approached before lodging a complaint before any external authority,
• If the subject matter of the complaint does not come under the purview of the scheme as mentioned in Clause 8 of the Scheme,
• If the issue concerning the complaint is pending or disposed of before any other court of law, or authoritative body, 
• The rule of lodging the complaint within one year of notification to the concerned institution has not been duly followed. 
• If the subject matter of the complaint is under the jurisdiction of the Payment and Settlement Systems Act, 2007 instead,
• If the subject matter concerned with the complaint has already been settled by any other authority previously or is too trivial or frivolous to be entertained. 

Conclusion

The Banking Ombudsman Scheme introduced in 2006 remained in effect till the year 2017. In place of this initiative, the Reserve Bank of India, in an attempt to further facilitate the process of alternative dispute resolution for the consumers and make the process more responsive, introduced the Integrated Ombudsman Scheme, 2021 coming into effect from 12 November 2021. It was implemented in accordance with the findings of the committee set up by the RBI to overlook the erstwhile progress of the previously introduced Ombudsman Schemes and suggest methods to further reform the same. This initiative covers under its ambit the following schemes:

• The Banking Ombudsman Scheme of 2006
• The Ombudsman Scheme for Non-Financial Companies of 2018
• The Ombudsman Scheme for Digital Transactions of 2019

In addition to integrating these schemes into one, the initiative also brings under its ambit, Non-Schedules Primary Cooperative Banks that have a deposit of Rs 50 crore or above, which was excluded from the erstwhile policies. Further, a Centralised Receipt and Processing Centre (CRPC) has been set up to consolidate the processing and handling of these complaints at the central level. This has been done in furtherance of the ‘One Nation – One Jurisdiction’ approach being undertaken by the Centre. The introduction of a portal to lodge the complaints and a multilingual number to provide assistance on such lodging are all steps to ensure the facilitation of the customers.

Hence, the new policy not only brings forth newer mechanisms to address the lacunae in the schemes previously implemented but also increases the accountability of the authorities by ensuring a more centralized and transparent approach. The digital transactions scheme is an excellent initiative to bring the authorities up to par and meet the incessantly changing realities of the consumers.