ANALYSIS OF BANKING OMBUDSMAN SCHEME

ANALYSIS OF BANKING OMBUDSMAN SCHEME History and Develop ent o! "#e $an%in& o $'ds an s(#e e)

The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 b RB! "ith effect from 1995 to #ro$ide an e%#editious and ine%#ensi$e forum to bank customers for resolution of their com#laints relating to banking ser$ices& The Scheme co$ered banking ser$ices rendered b scheduled commercial banks and scheduled #rimar coo#erati$e banks&The ob'ecti$e of the Banking Ombudsman Scheme is to be a $isible and reliable s stem of dis#ute resolution mechanism for bank customers& The Ombudsmen generall resort to conciliation or mediation for settlement of com#laints& The Banking Ombudsman Scheme "as re$ised in ())( to co$er Regional Rural Banks and to #ermit a re$ie" of the Banking Ombudsman*s A"ards against the banks b the Reser$e Bank& The Scheme "as further re$ised in ())+ gi$ing it a much "ider sco#e b including se$eral ne" areas of customer com#laints& The Banking Ombudsmen currentl ha$e their offices in 15 ,enters s#read across the countr and are full funded b the Reser$e Bank& The Banking Ombudsmen are ser$ing Officers of Reser$e Bank in the rank of ,hief -eneral .anagers and -eneral .anagers&

Constit'tion* po+ers and !'n(tions o! $an%in& o $'ds an Appoint ents ten're) The Reser$e Bank ma a##oint one or more of its officers in the rank of ,hief -eneral .anager or -eneral .anager to be kno"n as Banking Ombudsmen to carr out the functions entrusted to them b or under the Scheme& The a##ointment of Banking Ombudsman ma be made for a #eriod not e%ceeding three ears at a time& 1 Lo(ation o! o!!i(e) The office of the Banking Ombudsman shall be located at such #laces as ma be s#ecified b the Reser$e Bank& !n order to e%#edite dis#osal of com#laints, the Banking Ombudsman ma hold sittings at such #laces "ithin his area of 'urisdiction as ma be considered necessar and #ro#er b him in res#ect of a com#laint or reference before him&

,'risdi(tion* po+ers and d'ties o! $an%in& o $'ds an ) 1& The Reser$e Bank shall s#ecif the authorit of Scheme shall e%tend& (& The Banking Ombudsman shall recei$e and consider com#laints relating to the deficiencies in banking or other ser$ices filed on the grounds mentioned in the scheme and facilitate their satisfaction or settlement b agreement or through conciliation and mediation bet"een the bank concerned and the aggrie$ed #arties or b #assing an A"ard in accordance "ith the Scheme& 3& The Banking Ombudsman shall e%ercise general #o"ers of su#erintendence and control o$er his Office and shall be res#onsible for the conduct of business their o"n office& 4& The Office of the Banking Ombudsman shall dra" u# an annual budget for itself in consultation "ith Reser$e Bank and shall e%ercise the #o"ers of e%#enditure "ithin the a##ro$ed budget on the lines of Reser$e Bank of !ndia /%#enditure Rules, ())5& 5& The Banking Ombudsman shall send to the -o$ernor, Reser$e Bank, a re#ort, as on 3)th 0une e$er ear, containing a general re$ie" of the acti$ities of his Office during the #receding financial ear and shall furnish such other information as the Reser$e Bank ma direct and the Reser$e Bank ma , if it considers necessar in the #ublic interest so to do, #ublish the re#ort and the information recei$ed from the the territorial limits to "hich

each Banking Ombudsman a##ointed under the

Banking Ombudsman in such consolidated form or other"ise as it deems fit&

Co plaint #andlin& pro(ed're BY t#e $an%in& o $'ds an Gro'nds o! (o plaints +#i(# $an%in& o $'ds an is entitled to #ere) The Banking Ombudsman can recei$e and consider an com#laint relating to the follo"ing deficienc internet banking23 1& non4#a ment or inordinate dela in the #a ment or collection of che5ues, drafts, bills etc&6 (& non4acce#tance, "ithout sufficient cause, of small denomination notes tendered for an #ur#ose, and for charging of commission in res#ect thereof6 3& non4acce#tance, "ithout sufficient cause, of coins tendered and for charging of commission in res#ect thereof6 4& non4#a ment or dela in #a ment of in"ard remittances 6 5& failure to issue or dela in issue of drafts, #a orders or bankers* che5ues6 +& non4adherence to #rescribed "orking hours 6 7& failure to #ro$ide or dela in #ro$iding a banking facilit 1other than in banking ser$ices 1including

loans and ad$ances2 #romised in "riting b selling agents6

a bank or its direct

8& dela s, non4credit of #roceeds to #arties accounts, non4#a ment of de#osit or non4obser$ance of the Reser$e Bank directi$es, if an , a##licable to rate of interest on de#osits in an sa$ings,current or other account maintained "ith a bank 6 9& com#laints from 9on4Resident !ndians ha$ing accounts in !ndia in relation to their remittances from abroad, de#osits and other bank4 related matters6 1)&refusal to o#en de#osit accounts "ithout an $alid reason for refusal6 11&le$ ing of charges "ithout ade5uate #rior notice to the customer6 1(&non4adherence b the bank or its subsidiaries to the instructions of Reser$e Bank on AT.:;ebit card o#erations or credit card o#erations6 13&non4disbursement or dela in disbursement of #ension 1to the e%tent the grie$ance can be attributed to the action on the #art of the bank concerned, but not "ith regard to its em#lo ees26 14&refusal to acce#t or dela in acce#ting #a ment to"ards ta%es, as re5uired b Reser$e Bank:-o$ernment6 15&refusal to issue or dela in issuing, or failure to ser$ice or dela in ser$icing or redem#tion of -o$ernment securities6 1+&forced closure of de#osit accounts "ithout due notice or "ithout sufficient reason6

17&refusal to close or dela in closing the accounts6 18&non4adherence to the fair #ractices code as ado#ted b the bank or non4adherence to the #ro$isions of the ,ode of Bank s ,ommitments to ,ustomers issued b Banking ,odes and Standards Board of !ndia and as ado#ted b the bank 6 19&non4obser$ance of Reser$e Bank guidelines on engagement of reco$er agents b banks6 and ()&an other matter relating to the $iolation of the directi$es issued b the Reser$e Bank in relation to banking or other ser$ices& (1&A customer can also lodge a com#laint on the follo"ing grounds of deficienc in ser$ice "ith res#ect to loans and ad$ances 1& non4obser$ance of Reser$e Bank ;irecti$es on interest rates6 (& dela s in sanction, disbursement or non4obser$ance of #rescribed time schedule for dis#osal of loan a##lications6 3& non4acce#tance of a##lication for loans "ithout furnishing $alid reasons to the a##licant6 and 4& non4adherence to the #ro$isions of the fair #ractices code for lenders as ado#ted b the bank or ,ode of Bank*s ,ommitment to ,ustomers, as the case ma be6 5& non4obser$ance of an other direction or instruction of the Reser$e Bank as ma be s#ecified b the Reser$e Bank for this #ur#ose from time to time&

+& The Banking Ombudsman ma also deal "ith such other matter as ma be s#ecified b the Reser$e Bank from time to time&

Cir(' stan(es in +#i(# (o plaint not $e (onsidered $y t#e O $'ds an ) ,om#laint "ill not be considered if3 a& One has not a##roached his bank for redressal of his grie$ance first& b& One has not made the com#laint "ithin one ear from the date one has recei$ed the re#l of the bank,, or if no re#l is recei$ed if it is more than one ear and one month from the date of re#resentation to the bank&

c& The sub'ect matter of the com#laint is #ending for dis#osal : has alread been dealt "ith at an other forum like court of la", consumer court etc& d& <ri$olous or $e%atious& e& The institution com#lained against is not co$ered under the scheme& f& The sub'ect matter of the com#laint is not "ithin the ambit of the Banking Ombudsman& g& !f the com#laint is for the same sub'ect matter that "as settled through the office of the Banking Ombudsman in an #re$ious #roceedings&

pro(ed're !or !ilin& t#e (o plaint $e!ore t#e Ban%in& O $'ds an) One can file a com#laint "ith the Banking Ombudsman sim#l b

"riting on a #lain #a#er& One can also file it online& One ma lodge his: her com#laint at the office of the Banking Ombudsman under "hose 'urisdiction, the bank branch com#lained against is situated& centrali=ed o#erations, com#laints ma the customer is located& details +#i(# are re-'ired in t#e (o plaint) <or com#laints relating to credit cards and other t #es of ser$ices "ith be filed before the Banking Ombudsman "ithin "hose territorial 'urisdiction the billing address of

The com#laint should ha$e i& ii& the name and address of the com#lainant, the name and address of the branch or office of the bank against "hich the com#laint is made, iii& i$& $& $i& facts gi$ing rise to the com#laint su##orted b documents, if an , the nature and e%tent of the loss caused to the com#lainant, the relief sought from the Banking Ombudsman and a declaration about the com#liance of conditions "hich are re5uired to be com#lied "ith b the com#lainant&

li it on t#e a o'nt o! (lai

and (o pensation )

The amount, if an , to be #aid b the bank to the com#lainant b "a of com#ensation for an loss suffered b the com#lainant is limited to the amount arising directl out of the act or omission of the bank or Rs 1) lakhs, "hiche$er is lo"er& The Banking Ombudsman ma a"ard com#ensation not e%ceeding Rs 1 lakh to the com#lainant onl in the case of com#laints relating to credit card o#erations for mental agon and harassment& The Banking Ombudsman "ill take into account the loss of the com#lainant*s time, e%#enses incurred b the com#lainant,

harassment and mental anguish suffered b #assing such a"ard&

the com#lainant "hile

Sit'ations o! re.e(tion o! (o plaints $y $an%in& o $'ds an) The Banking Ombudsman ma re'ect a com#laint at an stage if it

a##ears to him that a com#laint made to him is3

not on the grounds of com#laint referred to abo$e com#ensation sought from the Banking Ombudsman is be ond Rs 1) lakh &

re5uires consideration of elaborate documentar are not a##ro#riate for ad'udication of such com#laint

and oral

e$idence and the #roceedings before the Banking Ombudsman

"ithout an sufficient cause that it is not #ursued b diligence the com#lainant "ith reasonable

in the o#inion of the Banking Ombudsman there is no loss or damage or incon$enience caused to the com#lainant&

Co plaint #andlin& pro(ed're) -enerall on recei#t of an com#laint, the Banking Ombudsman agreement bet"een the

endea$ors to resol$e the com#laint b

com#lainant and the bank named in the com#laint through a #rocess of conciliation or mediation& <or the #ur#ose of such resolution of the

com#laint, the Banking Ombudsman follo"s such #rocedures as he ma consider a##ro#riate and he is not bound b an legal rule of e$idence& !f a com#laint is not settled b agreement "ithin a #eriod of one month from the date of recei#t of the com#laint or such further #eriod as the Banking Ombudsman ma consider necessar , he ma #ass an A"ard after affording the #arties reasonable o##ortunit to #resent their case& >e shall be guided b the e$idence #laced before him b the #arties, the #rinci#les of banking la" and #ractice, directions, instructions and guidelines issued b the Reser$e Bank from time to time and such other factors, "hich in his o#inion are necessar in the interest of 'ustice&

the ste#s in$ol$ed in com#laint handling b ombudsman are Recei#t of com#laints

the banking

;ecision to handle or not Ackno"ledgement of those co$ered under the Scheme Return of those that cannot be handled under the Scheme ,all for comments from Banks ?romote a settlement through conciliation or #ass an a"ard

Appeal) !f one is not satisfied "ith the decision #assed b Ombudsman, one can a##roach the a##ellate authorit the Banking against the

Banking Ombudsmen*s decision& A##ellate Authorit is $ested "ith a

;e#ut -o$ernor of the RB!& One can also e%#lore an other recourse and:or remedies a$ailable to him:her as #er the la"& The bank also has the o#tion to file an a##eal before the a##ellate authorit under the scheme& ti e li it !or !ilin& an appeal !f one is aggrie$ed b the decision, one ma , "ithin 3) da s of the date of recei#t of the a"ard, a##eal against the a"ard before the a##ellate authorit & The a##ellate authorit ma , if he: she is satisfied that the a##licant had sufficient cause for not making an a##lication for a##eal "ithin time, also allo" a further #eriod not e%ceeding 3) da s&

Appeal #andlin& pro(ed're The a##ellate authorit ma i& dismiss the a##eal6 or

ii& iii&

allo" the a##eal and set aside the a"ard6 or send the matter to the Banking Ombudsman for fresh dis#osal in accordance "ith such directions as the a##ellate authorit ma consider necessar or #ro#er6 or

i$&

modif

the a"ard and #ass such directions as ma

be

necessar to gi$e effect to the modified a"ard6 or $& #ass an other order as it ma deem fit&

En!or(e ent o! t#e a+ard passed $y t#e $an%in& o $'ds an A co# of the A"ard shall be sent to the com#lainant and the bank named in the com#laint& An A"ard shall not be binding on a bank

against "hich it is #assed unless the com#lainant furnishes to it, "ithin a #eriod of 15 da s from the date of recei#t of co# of the A"ard, a letter of acce#tance of the a"ard in full and final settlement of his claim in the matter& !f the com#lainant does not acce#t the A"ard #assed b the Banking Ombudsman and fails to furnish his letter of acce#tance "ithin such time "ithout making an re5uest for e%tension of time to com#l "ith such re5uirements his com#laint shall be re'ected b the Banking Ombudsman & ?ro$ided that in the e$ent of the com#lainant making a "ritten re5uest for e%tension of time, the Banking Ombudsman ma sub'ect to his being satisfied "ith the e%#lanation as furnished b the com#lainant about his inabilit to consider the A"ard and furnish his letter of acce#tance, grant e%tension of time u# to further #eriod of fifteen da s for such com#liance&

So e e/a ples o! (ases #andled $y $an%in& o $'ds an Case 0 The com#lainant had a$ailed a housing loan of Rs 3,4),))):4from the bank at a fi%ed rate of interest of 8@ #er annum at 5uarterl rests on highest monthl reducing balance& The com#lainant alleged that the bank had subse5uentl increased the rate of interest to 1(&75@ contrar to terms of sanction of the loan& The bank submitted that the customer "as sanctioned loan at fi%ed interest rate, but as #er their e%tant instructions and internal circular, the interest rates are to be reset at the end of e$er t"o ears on the basis of interest rates #re$ailing at that time& Accordingl , the fi%ed interest rates "ere changed from 8@ to 1(&75@& ;uring the course of the #roceedings before the Banking Ombudsman, the bank re4"orked the a##licable interest at the contracted rate of interest and refunded the e%cess amount of Rs 17,93+:4, b credit to the com#lainantAs account& >o"e$er, the bank contended that going for"ard, the reset interest rate "ould be a##licable& The com#lainant "as also gi$en an e%it o#tion, "hich "as not acce#table to him& !f the interest rates are sub'ect to #eriodical rests, it is onl fair and reasonable that the same is e%#licitl stated in the loan agreement and sanction letter in an unambiguous and trans#arent manner& <urther, in choosing to #ro$ide a fi%ed rate loan to the customer, the bank has consciousl decided to carr the interest rate risk associated "ith the #roduct& The loan also carried a higher interest rate com#ared to floating rate #roduct as a #remium to"ards the interest rate risk& BO #assed an A"ard ad$ising the bank to strictl abide b the terms and conditions of the original arrangement and not gi$e effect to their #ro#osal to increase interest rate on the loan, unless e%#licitl consented to b the com#lainant

in "riting& The bank "as also ad$ised to #a an amount of Rs 1,))) to the com#lainant to"ards the cost of #ursuing this remed to his grie$ance& The bank has im#lemented the A"ard&

,ase ( The com#lainant "as maintaining a current account and a##roached the bank to con$ert his current account to cash credit account& <or the said #ur#ose he had #ledged 9S, amounting to Rs&1,(),))):4& Subse5uentl the bank neither sanctioned him a cash credit limit nor returned the certificates& !n the meantime the certificates "ere matured for #a ment and he re5uested the bank to return the certificates& The bank failed to return the certificates stating that the certificates had been mis#laced& The com#lainant taking u# the a##roached us "ith a re5uest to redress his grie$ances& On

matter "ith the bank, the bank assured to take u# the matter "ith the #ost office for issue of du#licate 9S,s& On recei#t of the du#licate 9S,s from the concerned #ost office, the com#lainant "as com#ensated for the loss of the original certificates& The com#lainant submitted a letter of satisfaction to the BO&

,ase 3 A com#laint relating to non4credit of che5ue amount into the account of the com#lainant "as recei$ed& The com#lainant had re#ortedl taken u# the matter "ith the bank se$eral times but there "as no res#onse b the bank to"ards credit of the che5ue amount& The com#lainant a##roached the BO for resolution of his grie$ances& On recei#t of the com#laint, BO 5uestioned the bank as to "hat action had been taken on the com#laint b them& The bank re#orted that the che5ue in 5uestion "as lost in transit resulting in non4credit of the che5ue amount to the com#lainantAs account& At the instance of BO, the bank took u# the matter "ith BT! .utual <und, ?atna b submitting letter of undertaking and death certificate& The .utual <und issued a du#licate che5ue and the amount "as credited to the com#lainantAs account& The com#lainant submitted a letter of satisfaction&

1evie+ o! Ban%in& O $'ds an S(#e e Data on 022345665 ,om#laints Recei$ed As against +)+( com#laints recei$ed during the #eriod 1998499 1A#ril4 .arch2, the number of com#laints recei$ed during 19994())), ()))4)1 and ())14)( stood at 4994, 58)3 and 59)7 res#ecti$el & As com#ared to the com#laints recei$ed during 1998499, there is a decrease of (&5@ during ())14)(& A$erage com#laints #er ear #er office decreased marginall from 4)4 to 394 during the abo$e #eriod&

?eriod

9o& of Offices 9o& of Banking com#laints recei$ed +)+( during 4994 58)3 59)7 Ombudsman 15 15 15 15

of A$erage 9o& of com#laints the 4)4&1 #er office 33(&9 38+&9 393&8

1998499 19994())) ()))4)1

1eport 75668456629 ?RO<!C/ O< ,O.?CA!9TS Sr& 9o& 1 ,om#laints brought for"ard from the #re$ious ear ( 3 4 5 ,om#laints recei$ed during the ear TOTAC ,om#laints dis#osed during the ear ,om#laints #ending at the close of the ear 4 Cess than one month ((+( 13(2 4 One to t"o months 193+ 1(72 4 T"o to three months 943 1132 4 .ore than 3 months 19+4 1(82 + A##eals recei$ed during the ear A##eals against A"ards A##eals against ;ecisions D 15 15 ) (71( 14+2 1394 1(42 8+1 1152 9(5 1152 18+ 17 1+9 38+38 447++ 37++1 71)5 47887 5499( 491)) 589( Sub'ect As on 3)&)+&)7 +1(8 3)&)+&)8 71)5

7 8

A##eals dis#osed of during the ear A##eals #ending at the close of the ear Cess than one month One to t"o months T"o to three months .ore than three months

13 (

154 3(

) ) ( ) sho" @ of

17 1) 3 ( #ending

<igure

in

brackets

D A##eals against decisions "ere allo"ed onl from .a ())7

Table4 9umber of com#laints recei$ed b the Banking Ombudsman Offices ?eriod 9o& Offices of Banking Ombudsman of No: re(eived during ear ())34 )4 ())44 )5 ())54 )+ ())+4 )7 ())74 )8 15 47887 (4 319( 15 38+38 (( (57+ 15 3173( ()) (115 15 1)5+) (8 7)4 15 8(4+ the o! Rate increase 1@ ear2 E 55) o$er #re$ious of A$erage 9o& of com#laints #er office

(o plaints

Advanta&es and disadvanta&es o! $an%in& o $'ds an s(#e e Advanta&es o! $an%in& o $'ds an) there is man ad$antages a$ailable in banking ombudsman scheme& 1i2& this mechanism #ro$ides settlement on the basis of mutual concern& 1ii2& !f there is no #ossibilit of settlement then onl ombudsman decide to take that matter for it*s ad'udication and #ass an a"ard& 1iii2& !n ombudsman #roceedings there is no fee is collected from the com#lainant 1customer2& 1i$2& ())+ scheme #ro$ide a##eal facilit , it gi$es more #ossible to the customer inter$ention& 1$2& e$en though enforcement is in the hands of com#lainant, if he gi$e his concern to enforce the a"ard the bank has the liabilit to do it& Because ombudsman is under the control of RB!& 1$i2& 9o" a da s man cases are handled b ombudsmann it to o#tain #ro#er remed "ithout 'udicial

reduces the burden of 'udiciar &

1$ii2& .ore o$er time and cost of com#lainant and res#ondent also sa$ed& 1$iii2& Regarding a##eal against ombudsman a"ard in to the 'udiciar com#aring bank side, customer side is $er less, it means that the scheme is a##ritiated and encouraged b customers& Disadvanta&es o! o $'ds an s(#e e) Fhen "e anal =e the scheme and it is #rogress there is too man loo#holes still un#lugged b RB!& The are as follo"s3 1i2& the ombudsman scheme is an o#tional one but not a #ro#er alternati$e one& Because banking ombudsman*s decisions are not binding in nature and referring the matter to ombudsman is not a statutor #ro$ision, it di##ons customer*s "ishes and choices& 1ii2& The ;ebt Reco$er Tribunal 1;RT2 is es#eciall constituted for the #ur#oses of dealing the matters of reco$er of debts& Some times ombudsman in$ol$e in this matter& This "as reflected in G durga hotel caseH& 1iii2& There is a #ossible the aggrie$ed #art of ana"ard #assed b ombudsman go to "rit on high court under article ((+ of inndian constitution& !n man cases a##eal "as made against ombudsman a"ards& 1i$2& !n man cases banks not res#onding ombudsman #roceedings including filing the same com#laint to 1;RT2 and struck do"n ombudsman*s 'urisdiction&

1$2& the enforcement of ombudsman a"ard is not in the hands of or banks, it is in the hands of the customer according to the scheme&

Con(l'sion and S'&&estions Con(l'sion) Abo$e said details gi$e a clear #icture about nature and gro"th of banking ombudsman scheme& Fhen "e go through table "h s are relating to filing cases is increasing, is sho"s the "illingness of the #eo#le to settled the dis#utes relating to banking through alternati$e rather than 'udicial ad'udication& But the success of the ombudsman de#ends the "illing of the #arties to settle the dis#ute through Banking ombudsman& !f one of the #arties is not "illing the scheme become useless&

S'&&estions) !n ())( ombudsman rules (1 and (( scheme #ro$ide arbitration #o"ers to the ombudsman es#eciall dis#utes relating to a bank and it*s constituencies and a bank and an other bank& >o"e$er the ())+ scheme is silent in this matter& ! feel that the arbitration #roceedings regarding customers grie$ances there is more #ossible to deduct the further a##eals& RB! also need to describe the 'urisdiction es#eciall matters

relating loans and ad$ances& RB! also search and find a suitable solution for se#arate the ;RT 'urisdiction from ombudsman 'urisdiction& RB! also keen to gi$e sti#ulations regarding ombudsman to all banks4 es#eciall not to dilute the ombudsman*s 'urisdiction from a dis#ute& if those changes "ill take #lace this scheme "ould be more attracti$e and effect&