ANALYSIS OF BANKING OMBUDSMAN SCHEME

BY

A.MARISPORT M.L(Business Law) marisportt@gmail.com

ANALYSIS UF BANKING OMBUDSMAN SCHEME History andDevelopment of The banking ombudsman scheme: The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act1, 1949 by RBI with effect from 1995 to provide an expeditious and inexpensive forum to bank customers for resolution of their complaints relating to banking services. The Scheme covered banking services rendered by scheduled commercial banks and scheduled primary cooperative banks2. The objective of the Banking Ombudsman Scheme is to be a visible and reliable system of dispute resolution mechanism for bank customers. The Ombudsmen generally resort to conciliation or mediation for settlement of complaints. The Banking Ombudsman Scheme was revised in 2002 to cover Regional Rural Banks and to permit a review of the Banking Ombudsman’s Awards against the banks by the Reserve Bank. The Scheme was further revised in 2006 giving it a much wider scope by including several new areas of customer complaints. The Banking Ombudsmen currently have their offices in 15 Centers spread across the country and are fully funded by the Reserve Bank. The Banking Ombudsmen are serving Officers of Reserve Bank in the rank of Chief General Managers and General Managers.

1

Under this section RBI has the power make regulations relating to banking services. This is inserted in the amendment rules 2002.

2

Constitution, powers and functions of banking ombudsman
Appointments tenure: The Reserve Bank may appoint one or more of its officers in the rank of Chief General Manager or General Manager to be known as Banking Ombudsmen to carry out the functions entrusted to them by or under the Scheme. The appointment of Banking Ombudsman may be made for a period not exceeding three years at a time. 3 Location of office: The office of the Banking Ombudsman shall be located at such places as may be specified by the Reserve Bank. In order to expedite disposal of complaints, the Banking Ombudsman may hold sittings at such places within his area of jurisdiction as may be considered necessary and proper by him in respect of a complaint or reference before him. Jurisdiction, powers and duties of banking ombudsman : 1. The Reserve Bank shall specify the territorial limits to which the authority of each Banking Ombudsman appointed under the Scheme shall extend. 2. The Banking Ombudsman shall receive and consider complaints relating to the deficiencies in banking or other services filed on the grounds mentioned in the scheme and facilitate their satisfaction or settlement by agreement or through
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3

Sections 4,5,6 of 2002 ombudsman scheme & section 4 of 2006 scheme. Section 7, 8 of the 2002 ombudsman scheme & section 5 of 2006 scheme.

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conciliation and mediation between the bank concerned and the aggrieved parties or by passing an Award in accordance with the Scheme. 3. The Banking Ombudsman shall exercise general powers of superintendence and control over his Office and shall be responsible for the conduct of business their own office. 4. The Office of the Banking Ombudsman shall draw up an annual budget for itself in consultation with Reserve Bank and shall exercise the powers of expenditure within the approved budget on the lines of Reserve Bank of India Expenditure Rules, 2005.
5. The Banking Ombudsman shall send to the Governor, Reserve Bank, a report, as on

30th June every year, containing a general review of the activities of his Office during the preceding financial year and shall furnish such other information as the Reserve Bank may direct and the Reserve Bank may, if it considers necessary in the public interest so to do, publish the report and the information received from the Banking Ombudsman in such consolidated form or otherwise as it deems fit.
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Complaint handling procedure BY the banking ombudsman
Grounds of complaints which banking ombudsman is entitled to here:
The Banking Ombudsman can receive and consider any complaint relating to the following deficiency in banking services (including internet banking): 1. non-payment or inordinate delay in the payment or collection of cheques, drafts, bills etc.;
5

Section 10, 11 of 2002 scheme & section 7 of 2006 scheme.

2. non-acceptance, without sufficient cause, of small denomination notes tendered for any purpose, and for charging of commission in respect thereof; 3. non-acceptance, without sufficient cause, of coins tendered and for charging of commission in respect thereof; 4. non-payment or delay in payment of inward remittances ; 5. failure to issue or delay in issue of drafts, pay orders or bankers’ cheques; 6. non-adherence to prescribed working hours ; 7. failure to provide or delay in providing a banking facility (other than loans and advances) promised in writing by a bank or its direct selling agents; 8. delays, non-credit of proceeds to parties accounts, non-payment of deposit or nonobservance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in any savings,current or other account maintained with a bank ; 9. complaints from Non-Resident Indians having accounts in India in relation to their remittances from abroad, deposits and other bank-related matters; 10. refusal to open deposit accounts without any valid reason for refusal; 11. levying of charges without adequate prior notice to the customer; 12. non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on ATM/Debit card operations or credit card operations; 13. non-disbursement or delay in disbursement of pension (to the extent the grievance

can be attributed to the action on the part of the bank concerned, but not with regard to its employees); 14. refusal to accept or delay in accepting payment towards taxes, as required by Reserve Bank/Government; 15. refusal to issue or delay in issuing, or failure to service or delay in servicing or redemption of Government securities; 16. forced closure of deposit accounts without due notice or without sufficient reason; 17. refusal to close or delay in closing the accounts; 18. non-adherence to the fair practices code as adopted by the bank or non-adherence to the provisions of the Code of Bank s Commitments to Customers issued by Banking Codes and Standards Board of India and as adopted by the bank ; 19. non-observance of Reserve Bank guidelines on engagement of recovery agents by banks; and 20. any other matter relating to the violation of the directives issued by the Reserve Bank in relation to banking or other services. 21. A customer can also lodge a complaint on the following grounds of deficiency in service with respect to loans and advances 1. non-observance of Reserve Bank Directives on interest rates; 2. delays in sanction, disbursement or non-observance of prescribed time schedule for disposal of loan applications;

3. non-acceptance of application for loans without furnishing valid reasons to the applicant; and 4. non-adherence to the provisions of the fair practices code for lenders as adopted by the bank or Code of Bank’s Commitment to Customers, as the case may be; 5. non-observance of any other direction or instruction of the Reserve Bank as may be specified by the Reserve Bank for this purpose from time to time.
6. The Banking Ombudsman may also deal with such other matter as may be

specified by the Reserve Bank from time to time. Circumstances in which complaint not be considered by the Ombudsman : Complaint will not be considered if: a. One has not approached his bank for redressal of his grievance first. b. One has not made the complaint within one year from the date one has received the reply of the bankCC or if no reply is received if it is more than one year and one month from the date of representation to the bank. c. The subject matter of the complaint is pending for disposal / has already been dealt with at any other forum like court of law, consumer court etc. d. Frivolous or vexatious. e. The institution complained against is not covered under the scheme.

f. The subject matter of the complaint is not within the ambit of the Banking Ombudsman. g. If the complaint is for the same subject matter that was settled through the office of the Banking Ombudsman in any previous proceedings.6

procedure for filing the complaint before the Banking Ombudsman:
One can file a complaint with the Banking Ombudsman simply by writing on a plain paper. One can also file it online. One may lodge his/ her complaint at the office of the Banking Ombudsman under whose jurisdiction, the bank branch complained against is situated. For complaints relating to credit cards and other types of services with

centralized operations, complaints may be filed before the Banking Ombudsman within whose territorial jurisdiction the billing address of the customer is located. details which are required in the complaint: The complaint should have i. ii. the name and address of the complainant, the name and address of the branch or office of the bank against which the complaint is made, iii.
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facts giving rise to the complaint supported by documents, if any,

Section 12 of 2002 scheme & section 8 of 2006 scheme.

iv. v. vi.

the nature and extent of the loss caused to the complainant, the relief sought from the Banking Ombudsman and a declaration about the compliance of conditions which are required to be complied with by the complainant.

limit on the amount of claim and compensation :
The amount, if any, to be paid by the bank to the complainant by way of compensation for any loss suffered by the complainant is limited to the amount arising directly out of the act or omission of the bank or Rs 10 lakhs, whichever is lower. The Banking Ombudsman may award compensation not exceeding Rs 1 lakh to the complainant only in the case of complaints relating to credit card operations for mental agony and harassment. The Banking Ombudsman will take into account the loss of the complainant’s time, expenses incurred by the complainant, harassment and mental anguish suffered by the complainant while passing such award.7 Situations of rejection of complaints by banking ombudsman: The Banking Ombudsman may reject a complaint at any stage if it appears to him that a complaint made to him is:
• •

not on the grounds of complaint referred to above compensation sought from the Banking Ombudsman is beyond Rs 10

lakh .

7

Section 13 of 2002 scheme & section 9 of 2006 scheme.

requires consideration of elaborate documentary and oral evidence

and the proceedings before the Banking Ombudsman are not appropriate for adjudication of such complaint
• • •

without any sufficient cause that it is not pursued by the complainant with reasonable diligence in the opinion of the Banking Ombudsman there is no loss or damage

or inconvenience caused to the complainant. 8

Complaint handling procedure: Generally on receipt of any complaint, the Banking Ombudsman endeavors to resolve the complaint by agreement between the complainant and the bank named in the complaint through a process of conciliation or mediation. For the purpose of such resolution of the complaint, the Banking Ombudsman follows such procedures as he may consider appropriate and he is not bound by any legal rule of evidence. If a complaint is not settled by agreement within a period of one month from the date of receipt of the complaint or such further period as the Banking Ombudsman may consider necessary, he may pass an Award after affording the parties reasonable opportunity to present their case. He shall be guided by the evidence placed before him by the parties, the principles of banking law and practice, directions, instructions and guidelines issued by the Reserve Bank from time to time and such other factors, which in his opinion are necessary in the interest of justice.
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Section 19 of 2002 scheme & section 13 of 2006 scheme.

the steps involved in complaint handling by the banking ombudsman

are Receipt of complaints
    

Decision to handle or not Acknowledgement of those covered under the Scheme Return of those that cannot be handled under the Scheme Call for comments from Banks 9 Promote a settlement through conciliation 10or pass an award11

Appeal: If one is not satisfied with the decision passed by the Banking Ombudsman, one can approach the appellate authority against the Banking Ombudsmen’s decision. Appellate Authority is vested with a Deputy Governor of the RBI. One can also explore any other recourse and/or remedies available to him/her as per the law. The bank also has the option to file an appeal before the appellate authority under the scheme. time limit for filing an appeal If one is aggrieved by the decision, one may, within 30 days of the date of receipt of the award, appeal against the award before the appellate authority. The appellate authority may, if he/ she is satisfied that the applicant had sufficient cause for not making an application for appeal within time, also allow a further period not exceeding 30 days.

9

Section 14 of 2002 scheme & section 10 of 2006 scheme. Section 15 of 2002 scheme & section 11of 2006 scheme.. Section 16 of 2002 scheme & section 12 of 2006 scheme.

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11

Appeal handling procedure The appellate authority may i. dismiss the appeal; or ii. allow the appeal and set aside the award; or iii. send the matter to the Banking Ombudsman for fresh disposal in accordance with such directions as the appellate authority may consider necessary or proper; or iv. modify the award and pass such directions as may be necessary to give effect to the modified award; or v. pass any other order as it may deem fit.12

Enforcement of the award passed by the banking ombudsman
A copy of the Award shall be sent to the complainant and the bank named in the complaint. An Award shall not be binding on a bank against which it is passed unless the complainant furnishes to it, within a period of 15 days from the date of receipt of copy of the Award, a letter of acceptance of the award in full and final settlement of his claim in the matter. If the complainant does not accept the Award passed by the Banking Ombudsman and fails to furnish his letter of acceptance within such time without making any request for extension of time to comply with such requirements his complaint shall be rejected by the Banking Ombudsman . Provided that in the event of the complainant making a written request for extension of time, the Banking Ombudsman may subject to his being satisfied with the explanation as furnished by the complainant about his

12

Section 14 of 2006 scheme. Here the 2002 scheme provide a review of ombudsman award by review authority under sections 17, 18.

inability to consider the Award and furnish his letter of acceptance, grant extension of time up to further period of fifteen days for such compliance.13

13

Section 16 of 2002 scheme & section 12 of 2006 scheme.

Some examples of cases handled by banking ombudsman
Case 1
The complainant had availed a housing loan of Rs 3,40,000/-from the bank at a fixed rate of interest of 8% per annum at quarterly rests on highest monthly reducing balance. The complainant alleged that the bank had subsequently increased the rate of interest to 12.75% contrary to terms of sanction of the loan. The bank submitted that the customer was sanctioned loan at fixed interest rate, but as per their extant instructions and internal circular, the interest rates are to be reset at the end of every two years on the basis of interest rates prevailing at that time. Accordingly, the fixed interest rates were changed from 8% to 12.75%. During the course of the proceedings before the Banking Ombudsman, the bank re-worked the applicable interest at the contracted rate of interest and refunded the excess amount of Rs 17,936/-, by credit to the complainant's account. However, the bank contended that going forward, the reset interest rate would be applicable. The complainant was also given an exit option, which was not acceptable to him. If the interest rates are subject to periodical rests, it is only fair and reasonable that the same is explicitly stated in the loan agreement and sanction letter in an unambiguous and transparent manner. Further, in choosing to provide a fixed rate loan to the customer, the bank has consciously decided to carry the interest rate risk associated with the product. The loan also carried a higher interest rate compared to floating rate product as a premium towards the interest rate risk. BO passed an Award advising the bank to strictly abide by the terms and conditions of the original arrangement and not give effect to their proposal to increase interest rate on

the loan, unless explicitly consented to by the complainant in writing. The bank was also advised to pay an amount of Rs 1,000 to the complainant towards the cost of pursuing this remedy to his grievance. The bank has implemented the Award.

Case 2
The complainant was maintaining a current account and approached the bank to convert his current account to cash credit account. For the said purpose he had pledged NSC amounting to Rs.1,20,000/-. Subsequently the bank neither sanctioned him a cash credit limit nor returned the certificates. In the meantime the certificates were matured for payment and he requested the bank to return the certificates. The bank failed to return the certificates stating that the certificates had been misplaced. The complainant approached us with a request to redress his grievances. On taking

up the matter with the bank, the bank assured to take up the matter with the post office for issue of duplicate NSCs. On receipt of the duplicate NSCs from the concerned post office, the complainant was compensated for the loss of the original certificates. The complainant submitted a letter of satisfaction to the BO.

Case 3
A complaint relating to non-credit of cheque amount into the account of the complainant was received. The complainant had reportedly taken up the matter with the bank several times but there was no response by the bank towards credit of the cheque amount. The complainant approached the BO for resolution of his grievances. On receipt of the complaint, BO questioned the bank as to what action had been taken on the complaint by them. The bank reported that the cheque in question was lost in transit resulting in non-credit of the cheque amount to the complainant's account. At the instance of BO, the bank took up the matter with UTI Mutual Fund, Patna by submitting letter of undertaking and death certificate. The Mutual Fund issued a duplicate cheque and the amount was credited to the complainant's account. The complainant submitted a letter of satisfaction.

Case 4
A complainant approached the BO alleging that the bank from which he had availed a housing loan had been charging a higher rate of interest . Initially he applied for a housing loan of Rs.8,50,000/-at the fixed rate of interest. The rate of interest applicable on the loan was 9.25% as per the brochure provided by the bank. However, the complainant alleged that the loan was sanctioned at an interest rate of 9.75% without explaining about the terms and conditions of the loan at the time of sanction. On taking up the case with the bank, the bank

informed BO that the higher rate of interest charged on the loan had since been rectified by the bank's data center and excess interest charged on the loan was adjusted and credited to the complainant's account.

Case 5
BO received a complaint where the complainant alleged that on her husband's death, she approached the concerned bank on November 27, 2008 for payment of family pension and all the formalities were completed as required by the bank. The Treasury Officer had converted the pension into family pension and advised the bank on October 18, 2008 to make payment to the widow. Though she had been approaching the bank there was no response from the bank. BO questioned the bank as to what action had been taken by them on the complaint. On persuasion, the bank redressed the grievances and paid the family pension to the complainant .

Case 6
The complainant was maintaining Priority Banking Savings accounts with a private sector bank. This account was opened a year back with average quarterly balance requirement of Rs.l lakh and the customer was promised several services, which were allegedly not provided to him. These services included cheque collection from his residence, valet parking at the branch, use of office for personal meetings, credit card facility, demat services, portfolio services and timely response to

transaction queries. It was observed that the bank had introduced the priority banking service product without first ensuring that its branches were properly equipped to provide the promised services to all such customers. The bank was also found deficient in as much as it had not communicated to the customer the various conditions linked to the promised services. It was not considered fair that the customer was made to maintain an average quarterly balance of Rs. 1 lakh without providing all the promised services. Thus, had the customer maintained a normal savings bank account with average quarterly balance requirement of Rs.5000/-, he would have had an opportunity to invest Rs.95,000/-in fixed deposit to earn higher interest. BO passed an award against the bank for payment of interest at fixed deposit rate of interest applicable at the time of opening the account plus 2% (with quarterly compounding) from the date of opening of account to the date on which the bank pays the interest.

Case 7
A cheque drawn by the EPF Department on the ABC Bank's Nasik

branch forRs.21.36 lakh was sent to XYZ Bank, New Delhi for credit to the account of the complainant. The amount was not credited to the complainant's account advising that it had not received the cheque. The complainant, however, obtained the Proof of Delivery from Post Office in support of the claim that it was delivered to the XYZ bank.. It transpired that the XYZ bank had actually misplaced the cheque before sending it for collection to ABC Bank and it had already furnished an affidavit to the EPF Department reporting the misplacement of the cheque and requesting for a duplicate cheque. With the intervention of BO, the bank credited

an amount of Rs. 18,894/-as interest on the delayedpayment since date of deposit of the cheque.

Case 8
The complainant was holding a credit card of a foreign bank. He complained that a caller from the bank persisted in selling Medical Insurance Benefit Scheme to the card holder though he as well as his family members did not require the same. After a few days he received a policy in the name of his son and daughter without taking his approval. When he called up the bank in June 2006, he was assured that the policies would be cancelled and later it was confirmed as well. But after a few days, he was advised to send a cancellation request by fax. The statement received showed unpaid balance. The complainant again sent two faxes in August and September 2006 for cancellation of the policies. In the conciliation meeting held by BO on 19 January 2009, the bank official stated that there was a recorded telephonic conversation with an Insurance Company and the bank had debited the account of the customer on the mandate received by the Insurance Company. There was no written mandate with the bank from the customer for debiting his account for premium of the policies of the Insurance Company. The bank failed to resolve the complaint for 2/3 years. However, with the intervention of BO, the debits of Rs.23,246/-were reversed. Case 9 The complainant maintaining an account at Bank A attempted a withdrawal of Rs.25,000/-from Bank B's ATM, but no cash was dispensed. However, his account was debited. He immediately complained to Bank A and then to Banking Ombudsman subsequently. Bank A retrieved the JP

log of 20.4.2008 from Bank B, which was not legible and confirmed that the transaction was successful. However, BO observed that the JP log appeared to be of 20.1.2008 and not of 20.4.2008, the reply was that actually the digit was 4 but appearing as 1 because of faulty printing. As we were still not convinced and insisted for a legible copy of JP log, Bank A informed after one month that they had received the amount from Bank B and the complainant's account had been credited. In fact, Bank B had possibly misinformed Bank A.

Case 10
An employee of a PSU had availed a housing loan of Rs 385000/-from XYZ Bank, under the tie-up arrangement between the bank and the PSU. The loan was offered at fixed rate of 7.5%. The bank subsequently increased the rate of interest from 7.5% to 8.5% and changed the EMI. When the matter was taken up with the bank, he was informed that as per the terms and conditions and the MOU, the fixed rate applicable for housing loan is 'adjusted interest rate' on the date of the agreement. The 'adjusted interest rate' was 'quoted rate' +/-changes in the BPLR of the bank on the date of agreement between the bank and the employees of the PSU. At the time of sanction of the loan, the BPLR was 11.50% so the 'adjusted interest rate' would be 8.5% and therefore the bank had charged the interest accordingly which would be reset after 5 years i.e. from 26.9.2006. As the bank's response was not convincing, he approached the BO. On calling for their comments, the bank informed that they were charging the interest in terms of the MOU entered between the bank and the PSU and that it

was in sync with the terms and conditions of the loan. BO advised the bank to furnish copies of the sanction letter, agreement with the complainant and copy of the MOU. On scrutinizing the aforesaid documents, it was observed that the rate of interest mentioned in the agreement at clause 7 was 8.5% (Fixed) and at clause 6 which was applicable to Floating rate, no entries were made. The sanction letter indicated 8.5% at fixed rate for 5 years to be reset after 5 years. Scrutiny of housing loan passbook disclosed that the bank was charging 7.5 % fixed interest from November 26, 2006 for 168 months at an EMI of Rs 3710/. The bank had not carried out the documentation of the loan properly, as there was a discrepancy in the housing loan passbook and the agreement with respect to rate of interest. The increase in EMI was not justifiable. Therefore, BO passed the benefit of doubt to the complainant and directed the bank to consider the rate of interest at 7.5% fixed for 5 years and reset thereafter and refund the excess EMI recovered. Bank complied with the order of BO.

Durga Hotel Complex Vs. Reserve Bank of India and Others. Fact of the case: Banking ombudsman Award Legality of Clause 16 of the Banking ombudsman Scheme, 1995 Sanction of Loan by Respondent-Bank to Appellant firm Part amount disbursed Additional advance sought by Appellant refused Respondent-Bank recalled loan after crediting original loan sanctioned from account of Appellant Appellant made complaint before Banking ombudsman (BO) Respondent-Bank approached Debts Recovery Tribunal (DRT) for recovery of loan Respondent-Bank questioned jurisdiction of BO to entertain Appellants complaint BO rejected the contention and decided the matter in Appellants favour Respondent-Bank challenged the award of BO on ground that subject matter of adjudication was beyond its jurisdiction Meanwhile, Appellant filed Writ Petition for enforcement of award Single judge decided in Respondent-Banks favour Letters Patent Appeals filed by Appellant dismissed Hence, present appeal Whether BO acted outside its jurisdiction in passing the award when the subject matter had already been referred to the DRT Held, BO is an independent and non-partisan officer acting as an alternative to adversary system for resolution of disputes When the subject matter of complaint lying before BO is taken to Court, Tribunal, Arbitrator or any other competent forum, subject matter is taken away from the purview of BO to an adjudicatory forum under an adversarial system The foundation of complaint filed before the BO gets lost in that case Even if BO initially had jurisdiction, the same taken away when the matter was referred to

DRT Accordingly, in present case BO has no jurisdiction to deal with matter High Court justified in interfering with the award of the BO Appeal dismissed Judgement: Civil Banking ombudsman Jurisdiction Clause 13 (b) of the Banking ombudsman Scheme, 1995 Respondent-Bank questioned jurisdiction of Banking ombudsman (BO) to entertain Appellants complaint BO rejected the contention and passed an award in Appellants favour Whether the subject matter of complaint within the purview of the BO Held, Clause 13(b) of the Scheme provides that ombudsman could entertain complaints concerning loans and advances only insofar as they relate to nonobservance of directives of Reserve Bank on interest rates, delays in sanction/nonobservance of prescribed time schedule for disposal of loan applications and nonobservance of any other directives of Reserve Bank, as may be specified from time to time It was not the case where Respondent bank was guilty of non-observance of the abovementioned directives of the Reserve bank Directions issued by BO while passing the award outside the jurisdiction as given under Clause 13 (b) Accordingly, BO had no jurisdiction to deal with matter Appeal dismissed Ratio Decidendi:
1. The jurisdiction of Banking ombudsman is laid down in Clause 13 (b) of the Banking ombudsman Scheme and it would not have jurisdiction on subject matters outside the purview of that provision. 2. When the subject matter of complaint lying before Banking ombudsman is taken to Court, Tribunal, Arbitrator or any other competent forum, Banking ombudsman loses the jurisdiction to deal with that matter.

UCO Bank rep. by the Chief Manager, Chennai Main Branch. Vs Digboi Refinery, Indian Oil Corporation Ltd., (Assam Oil Division) and Banking ombudsman Facts of the case: the petitioner Bank, the bank issued Guarantee No. 579/94 on 6.12.1994 at the request of M/s.AICAM Engineering Ltd. for Rs. 22,61,171.40 favouring Indian Oil Corporation {Ltd. towards advance payment and security deposit in relation to contract work of fired heaters for Digboi Refinery Project. This guarantee was originally valid until midnight ]of 5.12.1995. Similarly, the petitioner issued another guarantee to Indian Oil Corporation Ltd., Assam Oil Division, Digboi on 18.12.1996 bearing No. 387/96 for Rs. 19,76,368/- against a contract work of erection of equipment machinery fabrication and related civil and structural works for Digboi Reformer Project valid upto the midnight of 7.3.1997. The petitioner bank received two separate letters on 9.3.1998 from the first respondent, calling upon the petitioner bank to extend the guarantees for a further period upto September, 1998 or to treat the same as letters of invocation. Since the claim letters were filed on/lodged with the petitioner after the expiry of both the Guarantees, that is, on 9.3.1998, when the Guarantees were no longer in force and the bank was already released and discharged from all liabilities thereunder irrespective of whether original guarantees were returned or not, the claims were rejected by the petitioner bank and the first respondent was advised accordingly by its letter dated 30.6.1998. The first

respondent preferred a complaint with the second respondent/banking ombudsman

claiming deficiency of service on the part of the petitioner bank in not settling the claim filed after expiry of the Guarantees. The second respondent gave an award on 31.3.1999 that the petitioner should pay the amounts under both the guarantees totalling a sum of Rs. 35,13,306/- forthwith and also to pay compensation of Rs. 5,000/- to the complainant. Aggrieved by the order of the banking ombudsman, the petitioner filed the writ petition before thigh Court. judgment the learned Judge, after finding no merit in the issue raised for consideration, accepted the decision of the Banking ombudsman and dismissed the writ petition filed by the bank. Hence, the writ appeal. Ombudsman’s order was upheld by the high court and and supreme court. makant Choure Vs Banking ombudsman and OrS. In this case the court held that ombudsman not have the power to order to give the money for the victim who spend to his council for representing this case before the banking ombudsman.
Balla Rama Rao v. Banking Ombudsman A house in the name of B. Narayanama was given on lease to the bank in 1982. Subsequently, the lady died. The Bank did not pay rent from June 1992 to Feb. 1997. Balla Ramarao, the appellant approached the bank. Bank immediately paid the amount Rs. 3,09,562. Balla contended that the interest should also be paid for the period of 1992 to 1997. The bank refused to pay interest. The appellant approached to the banking ombudsman. But he rejected the complaint, holding no merit in the case as it was outside the jurisdiction of the

banking ombudsman. Balla approached to the Andhra Pradesh high court. The high court rejected the appeal, finding that it was outside the jurisdiction of the banking ombudsman.

R. Lakshmanan, Indian Overseas Bank rep. by its Chief Manager and V. Indira Stephen Vs. Indian Overseas Bank Nungambakkam Branch rep. by its Chief Manager and Ors. Order of Bank Release of Amount Clause 16(3)(d) of Banking Ombudsman Scheme, 1995 Present writ petition filed to direct respondent to release awarded amount passed by Banking Ombudsman in petitioner’s favour Held, award of

Banking Ombudsman has to be set aside on technical grounds that proper and necessary parties were not impleaded to proceedings Further, criminal complaint was pending, as a result of which jurisdiction of Ombudsman stood divested in terms of Clause 16(3)(d) of Scheme Aallegations made by petitioner are disputed questions of fact which could not have been gone into Ombudsman without impleading proper and necessary parties and causing an enquiry into those facts Therefore, Ombudsman order is liable to be set aside Writ petitions dismissed

Review of Banking Ombudsman Scheme

Data on 1997-2002 Complaints Received

As against 6062 complaints received during the period 1998-99 (April-March), the number of complaints received during 1999-2000, 2000-01 and 2001-02 stood at 4994, 5803 and 5907 respectively. As compared to the complaints received during 1998-99, there is a decrease of 2.5% during 2001-02. Average complaints per year per office decreased marginally from 404 to 394 during the above period.

Period

No. of Offices of Banking

No. of complaints received during 6062 4994 5803 5907

Average No. of complaints per office 404.1 332.9 386.9 393.8

1998-99 1999-2000 2000-01 Analysis of complaints received (subject-wise)

Ombudsman 15 15 15 15

Particulars Deposit Accounts Loans and Advances Delay in collection of cheques/bills Non-issue of duplicate drafts Miscellaneous Total

1998-99 1830 1904 1198 198 2334 7464* (1402)

1999-2000 1687 1844 943 138 2188 6800* (1806)

2000-01 1617 1930 999 170 2262 6978* (1175)

2001-02 1662 1982 1062 130 2186 7022* (1115)

*No.of complaints includes previous year's pending complaints as indicated in brackets.

Besides the miscellaneous complaints, the maximum number of complaints dealt with during the period under review pertained to deficiency in servicing of loans and advances followed by deposit accounts and delay in collection of cheques/bills, etc.

Bank-group-wise

Bank group Nationalised Banks SBI Group Private Sector Banks Foreign Banks Scheduled Primary Coop. Banks Others

1998-99 4063 2337 390 219 82 373

1999-2000 3857 1960 417 198 131 237

2000-01 3657 2175 531 147 122 346

2001-02 3609 2112 629 254 55 363

Total

7464

6800

6978

7022

Centre-wise

For the year ended March 31, 2002 the maximum number of complaints were received at Jaipur (1021). Other offices of the Banking Ombudsman, which received more than the average number of complaints of 394, were New Delhi (624), Thiruvananthapuram (545),Kolkata (506), Chandigarh (466) and Hyderabad (406). As in the past, majority of complaints during the period emanated from metropolitan and urban centers. Very few complaints were received from rural and semi-urban areas. In order to popularize the Scheme among the rural and semi-urban population, campaigns have been organized by the Offices of Banking Ombudsman apart from inserting advertisements in the local newspapers. The Banking Ombudsmen are also interacting with the Chambers of Commerce and Industry and Bank Managers' Club, etc. Disposal of Complaints

Particulars Complaints received Of which not maintainable Complaints maintainable Disposed of Pending

1998-99 7464* 3317 4147 2807 1340

1999-2000 6800* 2614 4186 2484 1702

2000-01 6978* 2732 4246 3131 1115

2001-02 7022* 2404 4618 3511 1107

Of the pending complaints,

775

998

589

624

those pending for more *Includes previous year's pending complaints. than 2 months

The average number of complaints disposed of per office stood at 187, 166, 209 and 234 for the years ended March 31, 1999, 2000, 2001 and 2002 respectively and showed an increasing trend.

AWARDS ISSUED

During the period under review (i.e. 1998-99 to 2001-02), 262 awards were issued which formed 2.2% of the total 11933 maintainable complaints disposed of. Officewise details of the awards issued are furnished hereunder :

Sr. 1 2 3

Centres Ahmedabad Bangalore Bhubaneswar

199 899 7

19992 0001 6 2

20000 1 4 3 1

20010 2 7 3

4 5

Bhopal Kolkata

2 2

3 14 16 15

6 7

Chennai Chandigarh

8 0

10 0

9 1 2

8

Guwahati

2

2

9

Hyderabad

14

9

2

10

Jaipur

4

1

3

4

11 12 1 3 14 15

Kanpur Patna Mumbai

28 23 2

20

8

5

1

1

2

New Delhi Thiruvananthapuram

2

3 2

2

3

Total awards Awards not implemented by banks % of disposal of complaints by issue of awards to total maintainable complaints

92

74

52

44

49 3.28

34 2.98

27 1.66

16 1.25

%

of

disposal

of

complaints

by

96.72

97.02

98.34

98.75

mediation/reconciliation/recommendatio n to total maintainable complaints Report (2003-2009) PROFILE OF COMPLAINTS Subject Complaints brought forward from the previous year Complaints received during the year TOTAL Complaints disposed during the year Complaints pending at the close of the year - Less than one month - One to two months - Two to three months - More than 3 months 6 Appeals received during the year Appeals against Awards Appeals against Decisions * 7 Appeals disposed of during the year 8 Appeals pending at the close of the year Less than one month One to two months Two to three months More than three months Figure in brackets show % of pending * Appeals against decisions were allowed only from May 2007

Sr. No. 1 2 3 4 5

As on 30.06.07 30.06.08 6128 7105 38638 44766 37661 7105 2262 (32) 1936 (27) 943 (13) 1964 (28) 15 15 0 13 2 0 0 2 0 47887 54992 49100 5892 2712 (46) 1394 (24) 861 (15) 925 (15) 186 17 169 154 32 17 10 3 2

Table- Number of complaints received by the Banking Ombudsman Offices Period No. of Offices No. of Rate of Average No. of

of Banking Ombudsman 200304 200405 200506 200607 200708 15 15 15 15 15

complaints received during the year 8246 10560 31732 38638 47887

increase (% over previous year) — 28 200 22 24

complaints per office

550 704 2115 2576 3192

Population-segment wise Receipt The offices of the Banking Ombudsman received complaints from almost all the regions of the country. The region wise position of complaints is given in Table 3 Chart 3: Table - Population-segment—wise receipt of complaint at the Offices of Sr. No. 1 2 3 4 Banking Ombudsman during 2007-08 Region No. of complaints received Rural 8418 Semi Urban 6641 Urban 10978 Metropolitan 21850 TOTAL 47887

The reasons for larger number of complaints from the urban and metropolitan regions are increased penetration of banking, increased awareness and increased expectations of customers in such areas. There is however evidence that there is increase in the receipt of complaints from rural and semi-urban areas, as the Banking Ombudsman have created more awareness in such areas through personal visits, media coverage and advertisements. Banking Ombudsman-wise receipt Table - Banking Ombudsman wise complaint receipt during 2006-07 and

2007-08 Banking Ombudsman Office Ahmedabad Bangalore Bhopal Bhubaneswar Chandigarh Chennai Guwahati Hyderabad Jaipur Kanpur Kolkata Mumbai New Delhi Patna

2006-07 2107 2406 2731 689 2006 2387 170 2767 2976 4321 2011 5525 5481 1481

2007-08 2855 2975 3402 998 2331 4545 282 2843 3369 5340 2815 6070 6742 1480

Bank Group-Wise Receipt at Banks Table - Bank Group wise-complaints Name of the bank received by Banks Received during the Received during

group State Bank Group Nationalized Banks Old Private Sector Banks New Private Sector Banks Foreign Banks in India TOTAL

2006-07 21909 45794 1100 828903 342599 1240305

the2007-08 21736 59708 1770 738942 357516 1179672

The above data does not include complaints redressed within a day. It may be seen that in the year 2007-08, bulk of the complaints at 92.95% has been received by the new private sector banks and foreign banks. However, there has been a fall in the number of complaints received by banks in 2007-08 compared to 2006-07 mainly due to reduction in complaints against new private sector banks. Table Category-wise receipt of complaints received in 2006-07 & 2007-08 Nature of complaint Received during Received during 2006-07 Deposit accounts Remittances Credit cards Loans and advances - General Loans and advances - Housing Charges without notice Pension Failure to meet commitments DSAs and recovery agents Notes and coins Others TOTAL 5803 4058 7688 4442 709 2594 1070 1469 1039 130 9636 38638 2007-08 5612 5213 10129 5297 757 3740 1582 6388 3128 141 5900 47887

Disposal of Complaints Banking Ombudsman Offices disposed of more than 80% of the complaints dealt on an annual basis. During the year 2007-08, 89% of the complaints dealt were disposed off. Around 53% of the complaints dealt have been disposed by mutual settlement or by award while around 36% of the complaints dealt have been rejected. Table Table - Disposal of Complaints by Banking Ombudsman Offices Particulars 2003-04 2004200520062007Complaints received* Complaints disposed by rejection Complaints disposed by mutual settlement/ award Total number of complaints disposed of Complaints that are carried forward to the next year % 16 14 * Includes previous year’s pending complaints. 18 16 11 % No. 84 1474 86 1631 82 6170 84 7105 89 5892 % No. 42 8009 45 10403 45 27193 49 37661 53 49100 % No. 42 3998 41 5440 37 14889 35 22150 36 29365 9483 4011 05 12034 4963 06 33363 12304 07 44766 15511 08 54992 19735

No.

The Banking Ombudsmen disposed of complaints, other than the rejected complaints, either by settlement or by issuing an Award. During the period

reviewed, the ratio of complaints disposed by settlement to the complaints disposed by award was around 0.28 clearly indicating the effectiveness of the Banking Ombudsmen in arriving at mutually agreed consensus between bankers and complainants. During the above period, only 70 awards were issued. From the year 2005-06, the number of awards issued and the percentage of disposal through award issuance have come down despite huge increase in the complaints received. The fact that the Banking Ombudsmen could dispose of 99.72 % of the complaints by settlement between the complainant and the concerned banks, indicates that the conciliation approach was effective, and there was no need for the Banking Ombudsman to pass any award. Table ) Table - Mode of disposal of complaints (other than rejected complaints) during the years 2003-04 to 2007-08 Sr. Year No. of complaints Disposal by Disposal by No. disposed of Award settlement No. % No. % 1 2003-2004 3998 121 3.00 3877 97.00 2 2004-2005 5440 165 3.03 5275 96.97 3 2005-2006 14889 146 0.98 14743 99.02 4 2006-2007 22150 84 0.38 22066 99.62 5 2007-2008 29365 70 0.24 29295 99.76

Reasons for Rejection of complaints received in 2007-08 Table - Reasons for Rejection of complaints received in 2007-08 Reasons Number Percentage First resort complaint Time barred complaint Complaint dealt earlier Pending in other forum Frivolous complaint Not signed, incomplete address etc. Without sufficient cause 7950 260 333 476 137 434 3249 40 1 2 2 1 2 16

Sr. No. 1 2 3 4 5 6 7

8 9 10 11

Not pursued by the complainant Complicated requiring alaborate evidence No loss to the complainant Complaint subject matter outside scheme

706 478 547 2537

4 2 3 13 6 8 100

scope 12 Unrelated complaint 1136 13 Bank branch outside jurisdiction * 1492 TOTAL 19735 * Sent to the BO under whose jurisdiction it falls for actions.

Appeal against the decisions of the Banking Ombudsmen Table 16 - Number of Appeals Received during 2007-08 Particulars Appeals against Awards Appeals against Decisions TOTAL Appeals disposed of during the year Appeals pending at the close of the year Less than one month One to two months Two to three months More than 3 months 17 10 3 214 No. of Appeals 17 169 186 154 32

14

15

Advantages and disadvantages of banking ombudsman scheme
Advantages of banking ombudsman: there is many advantages available in banking ombudsman scheme. (i). this mechanism provides settlement on the basis of mutual concern. (ii). If there is no possibility of settlement then only ombudsman decide to take that matter for it’s adjudication and pass an award. (iii). In ombudsman proceedings there is no fee is collected from the complainant (customer). (iv). 2006 scheme provide appeal facility, it gives more possible to the customer to optain proper remedy without judicial intervention. (v). even though enforcement is in the hands of complainant, if he give his concern to enforce the award the bank has the liability to do it. Because ombudsman is under the control of RBI. (vi). Now a days many cases are handled by ombudsmann it reduces the burden of judiciary. (vii). More over time and cost of complainant and respondent also saved.
15

Annual Reports of RBI on BOS-1997 to 2008.

(viii). Regarding appeal against ombudsman award in to the judiciary comparing bank side, customer side is very less, it means that the scheme is appritiated and encouraged by customers.

Dis advantages of ombudsman scheme:

When we analyze the scheme and it is progress there is too many loopholes still unplugged by RBI. They are as follows: (i). the ombudsman scheme is an optional one but not a proper alternative one. Because banking ombudsman’s decisions are not binding in nature and referring the matter to ombudsman is not a statutory provision, it dippons customer’s wishes and choices. (ii). The Debt Recovery Tribunal (DRT) is especially constituted for the purposes of dealing the matters of recovery of debts. Some times ombudsman involve in this matter. This was reflected in “ durga hotel case”. (iii). There is a possible the aggrieved party of anaward passed by ombudsman go to writ on high court under article 226 of inndian constitution. In many cases appeal was made against ombudsman awards. (iv). In many cases banks not responding ombudsman proceedings including filing the same complaint to (DRT) and struck down ombudsman’s

jurisdiction. (v). the enforcement of ombudsman award is not in the hands of or banks, it is in the hands of the customer according to the scheme.

Conclusion and Suggestions
Conclusion:
Above said details give a clear picture about nature and growth of banking ombudsman scheme. When we go through table whys are relating to filing cases is increasing, is shows the willingness of the people to settled the disputes relating to banking through alternative rather than judicial adjudication. But the success of the ombudsman depends the willing of the parties to settle the dispute through Banking ombudsman. If one of the parties is not willing the scheme become useless.

Suggestions:
In 2002 ombudsman rules 21 and 22 scheme provide arbitration powers to the ombudsman especially disputes relating to a bank and it’s constituencies and a bank and an other bank. However the 2006 scheme is silent in this matter. I feel that the arbitration proceedings regarding customers grievances there is more possible to deduct the further appeals. RBI also need to describe the jurisdiction especially matters relating loans and advances. RBI also search and find a suitable solution for separate the DRT jurisdiction from ombudsman jurisdiction. RBI also keen to give stipulations regarding ombudsman to all banks- especially not to dilute the ombudsman’s jurisdiction from a dispute. if those changes will take place this scheme

would be more attractive and effect.

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