ROLE OF BANKING OMBUDSMAN FOR EFFICIENT SETTLEMENT

OF COMPLAINT: AN ANALYSIS
BAL 9.1: BANKING AND FINANCIAL LAWS

Submitted by:

Himanshu Solanki

UID: UG2018-35

B.A. LL.B.(Hons.) 5th Year- IX Semester

Submitted to:

Mr. Sumit Bamhore

(Assistant Professor of Law)

Mr. Sumit Kumar Malviya

(Assistant Professor of Economics)

SESSION: 2022-23

MAHARASHTRA NATIONAL LAW UNIVERSITY, NAGPUR

 TABLE OF CONTENTS

I. INTRODUCTION..............................................................................................................1

II. STATEMENT OF PROBLEM.......................................................................................1

III. RESEARCH OBJECTIVE..............................................................................................2

IV. RESEARCH QUESTION...............................................................................................2

V. HYPOTHESIS................................................................................................................2

VI. RESEARCH METHODOLOGY....................................................................................2

VII. INTEGRATED OMBUDSMAN SCHEME, 2021:........................................................2

A. SALIENT FEATURES OF THE SCHEME:..............................................................3

B. ROLE & FUNCTION OF OMBUDSMAN................................................................3

C. ENTITIES COVERED UNDER THE INTEGRATED OMBUDSMAN SCHEME,

2021: 4

D. GROUNDS OF COMPLAINT...................................................................................5

VIII. EFFECTIVENESS OF THE SCHEME: AN ANALYSIS.........................................5

1. The Banking Ombudsman Scheme, 2006.......................................................................6

2. The Ombudsman Scheme for Non-Banking Financial Companies, 2018......................6

3. The Ombudsman Scheme for Digital Transactions, 2019..............................................6

IX. CONCLUSION...............................................................................................................7

X. BIBLIOGRAPHY/REFERENCE...................................................................................8
 I. INTRODUCTION
Banks have assumed an extraordinary role in today’s global economy, which is ruled by
markets, trade, and commerce. Banks have long since assumed the role of curator for national
and international monetary systems. The banking system has undergone significant change
and evolution over the course of many years, transitioning from its more primitive forms to
conform with the modern structure. These days, everybody knows that banks are what hold
the economy together. However, they exist because of the customers who deposits their
money in such system.
Looking back to 1995, we can see that banking customers were having a hard time thanks to
their bankers, prompting them to seek various legal remedies in order to recover damages and
compensation for the harm done to them by the fraudulent services provided by their
financial institutions. Banking customers were given a number of legislative protections in
response to these problems, including the “Consumer Protection Act of 1986” and the
“Banking Ombudsman Scheme of 1995.”1 Since we are concerned with the latter regulation,
the researcher has undertaken to cover its effectiveness in the paper.
In order to address any complaints that could have arisen regarding bank services, loans and
advances, as well as other things that may occasionally be mentioned by the RBI, the
RBI created the Ombudsman Scheme of 1995. The RBI implemented this programme using
the authority granted to them by Section 35A of the Banking Regulation Act of 1949 because
they believed it was required in the welfare of the general public and the direction of banking
policy. Over time, it has been amended, and finally given the shape of Integrated Banking
Ombudsman Scheme in 2021 (hereby, the Scheme). What begs question is its efficacy in
meeting its objectives. Therefore, researcher has studied its essence, traced history and
analysed its role in the current Banking sector.

II. STATEMENT OF PROBLEM

Banking Ombudsman Scheme has been in force since 1995. Before that banking customers
had to approach Court of law to get their issues solved. In essence, the conflicts and resulting
issues were not too big to be taken to court, because there existed no other option, the cases
were filed and court faced huge burden. Eventually, leading to inefficient and delayed
resolution. Thus, it was with great optimism that the scheme was welcomed. However,
whether it brought positive results or not, constituted the question to be deliberated by the

1
Nishtha Kheria & Varun Vikas Srivastav, “Annihilation of the Relationship Between the Banker and Customer
Through the Operation of Law,” [2020] 10.1 NULJ 65, SCC Online.

1
researcher.

III. RESEARCH OBJECTIVE

Objectives researcher had in mind while writing the paper were:
1. To examine the RBI’s approach in simplifying the Grievance Redressal Mechanism
for Banking Customers through Banking Ombudsman Scheme.
2. To examine the impact made by Banking Ombudsman Scheme in Banking as well as
Non-Banking Financial Industry sector and Digital Transactions.

IV. RESEARCH QUESTION

Questions researcher had in mind while studying the assignment were:
1. What is the rationale behind the introduction of Scheme?
2. Who is Banking Ombudsman?
3. What are the sectors of banking covered by this Scheme?
4. What are the grounds of complaint to initiate a proceeding with Banking
Ombudsman?

V. HYPOTHESIS
As the Banking Ombudsman Scheme has been actively in force since 1995 and has been
amended from time to time, so it is expected that it is plugging the hole which was left open
in its absence, i.e., facilitating expedient and just resolution of banking complaints.

VI. RESEARCH METHODOLOGY

The researcher has adopted ‘Doctrinal’ type of the methodology whereby primary and
secondary sources has been employed to gather information significant to the issue
beforehand. Online articles and research papers of different writers relating to the subject, as
well as official notifications by RBI were taken into consideration. Various judicial
pronouncement has also been referred to present a thorough picture. Reliable sources have
been taken which holds certain authority to present the issue in a way suitable to disseminate
the intricacies attached to the requirements of valid arbitration agreement in international
context. The source of information also consists of the theoretical knowledge the researcher
possesses as a student of law.

VII. INTEGRATED OMBUDSMAN SCHEME, 2021:

The Reserve Bank of India to make the alternate dispute redress mechanism simpler and
more responsive to the customers of entities regulated by it, integrated the three Ombudsman

2
schemes into the Reserve Bank – “Integrated Ombudsman Scheme, 2021” (came into force
on 12th November, 2021). It includes-
i. The “Banking Ombudsman Scheme, 2006,” as amended up to July 01, 2017;
ii. The “Ombudsman Scheme for Non-Banking Financial Companies, 2018;”
iii. The “Ombudsman Scheme for Digital Transactions, 2019”
The Scheme of 1995, which later evolved, sought to establish a system of expeditious and
inexpensive resolution of customer complaints and it is administered by RBI through 22
Offices of Banking Ombudsman (OBOs) covering all states and union territories. Further, the
Scheme adopts “One Nation One Ombudsman” approach by making the RBI Ombudsman
mechanism jurisdiction neutral.2
A. SALIENT FEATURES OF THE SCHEME:
Some of them are –
1. A complainant will no longer need to specify under which arrangement he or she
should submit a grievance to the Ombudsman.
2. The term “deficiency in service” is defined in the Scheme as the basis for registering a
complaint, subject to a list of exceptions. The objections would no longer be
dismissed for the simple reason that they “were not covered under the grounds
mentioned in the programme.”
3. The scope of each ombudsman office’s authority has been eliminated by the Scheme.
4. For the reception and first processing of physical and electronic complaints in any
language, the RBI in Chandigarh has established a “Centralized Receipt and
Processing Center.”
B. ROLE & FUNCTION OF OMBUDSMAN
The word ‘Ombudsman’ in general means a “grievance man”, provided under the RBI report
as “a public official who is appointed to investigate complaints against the administration.
He is to intervene for the ordinary citizen in his dealings with the complex machinery of the
establishment.”3 The Banking Ombudsman is a senior official appointed by the Reserve Bank
of India to redress customer complaints against deficiency in certain banking services
covered under the grounds of complaint specified under Clause 8 of the Banking
Ombudsman Scheme 2006 (As amended upto July 1, 2017).
In India, any person whose grievance against a bank is not resolved to his satisfaction by that

2
BFSI.com, “Here’s What You Need to Know about RBI’s Integrated Ombudsman Scheme”, The Economic
Times, 12th November, 2021.
3
Reserve Bank of India, “Annual Report on Banking Ombudsman Scheme,” 2003-2004.

3
bank within a period of two months can approach the Banking Ombudsman if his complaint
pertains to any of the matters specified in the Scheme. Banking Ombudsmen have been
authorized to look into complaints concerning: “(a) deficiency in banking service (b)
sanction of loans and advances as they relate to non-observance of the Reserve Bank
directives on interest rates, delay in sanction or non-observance of prescribed time schedule
for disposal of loan applications or non-observance of any other directions or instructions of
the Reserve Bank as may be specified for this purpose, from time to time, and (c) such other
matters as may be specified by the Reserve Bank.”4
The Scheme calls for the prompt, satisfactory, and timely resolution of customer concerns.
Upon receiving a complaint, the Banking Ombudsman makes every effort to facilitate
conciliation or mediation between the complainant and the bank that is the subject of the
complaint in order to reach a resolution. The Banking Ombudsman has been given
permission to follow any processes he deems suitable in order to advance a resolution of the
complaint, and he is not constrained by any legal “rule of evidence.” If a complaint is not
resolved by agreement within one month of its receipt, or within such further time as the
Banking Ombudsman deems appropriate, he may issue an Award after giving the parties a
sufficient opportunity to state their case. He will be guided by the facts presented to him by
the parties, the principles of banking law and practice, the Reserve Bank’s orders,
instructions, and guidelines published from time to time, and any other elements that he
believes are essential in the interest of justice.
In the case of Durga Hotel Complex v. Reserve Bank of India 5 question over the jurisdiction
of Ombudsman arose. In that regards, the Hon’ble SC held that:
“The Ombudsman, at best, is an authority or Tribunal of limited jurisdiction constituted
under the Scheme. It is a jurisdiction conferred by the Scheme. The exercise of jurisdiction or
power by the Ombudsman would depend on his having jurisdiction not only to entertain a
claim but also to bring it to an end. Once he is deprived of his jurisdiction or gets deprived of
his jurisdiction over the subject-matter, he could no more proceed with a complaint which
was earlier filed.”
So, when one of parties in a complaint before Banking Ombudsman takes subject-matter to a
Court, arbitrator, Tribunal or forum, Banking Ombudsman gets divested of his jurisdiction to
pass any order or award on complaint.

4
Supra note 3.
5
[2007] 75 SCL 406 (SC).

4
 C. ENTITIES COVERED UNDER THE INTEGRATED OMBUDSMAN
SCHEME, 2021:

The following specified institutions are covered under the Scheme:

a. “All Commercial Banks, Regional Rural Banks, Scheduled Primary (Urban)
Cooperative Banks and Non-Scheduled Primary (Urban) Co-operative Banks with
deposits size of Rupees 50 crore and above as on the date of the audited balance sheet
of the previous financial year;”
b. “All Non-Banking Financial Companies (excluding Housing Finance Companies)
which are authorized to accept deposits; or have customer interface, with an assets
size of Rupees 100 crore and above as on the date of the audited balance sheet of the
previous financial year;”
c. “All System Participants as defined under the Scheme.”
D. GROUNDS OF COMPLAINT
Clause 8 of the Banking Ombudsman Scheme, 2006 includes the grounds of complaints as
mentioned below (list is not exhaustive):
 “non-payment or inordinate delay in the payment or collection of cheques, drafts,
bills etc.;
 non-acceptance, without sufficient cause, of small denomination notes tendered for
any purpose, and for charging of commission in respect thereof;
 non-acceptance, without sufficient cause, of coins tendered and for charging of
commission in respect thereof;
 non-payment or delay in payment of inward remittances;
 failure to issue or delay in issue of drafts, pay orders or bankers’ cheques;
 non-adherence to prescribed working hours;
 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; and many
more.”

VIII. EFFECTIVENESS OF THE SCHEME: AN ANALYSIS

Having established the system of Banking Ombudsman, it is equally important to see the
growth and changes brought about in quantitative terms. Without numbers and statistics,
studies are nothing more than words. To make a case about the positive reforms brought
forward by the scheme, we will need to see Annual Report on Banking Ombudsman Scheme

5
published by RBI every year. It is an exhaustive literature which encapsulates the
improvements and changes resulting from the Ombudsman Scheme. The Annual Report that
will be discussed hereafter is of the transition year 2020-21, prepared for the nine-month
period from 1st July, 2020 to 31st March, 2021. This report, however, does not contain the
statistics under one head of Integrated Ombudsman Scheme as it only came in 2021. Also, it
is worth mentioning that this report illustrates the progress made under three heads of (and it
will be last of its kind):
i. The “Banking Ombudsman Scheme, 2006”, as amended up to July 01, 2017;
ii. The “Ombudsman Scheme for Non-Banking Financial Companies, 2018”;
iii. The “Ombudsman Scheme for Digital Transactions, 2019”
1. The Banking Ombudsman Scheme, 2006
Complaints received: “During the transition year July 1, 2020 to March 31, 2021, the OBOs
received 2,73,204 complaints, as compared to 3,08,630 complaints during the previous year
(July 1, 2019 to June 30, 2020). Of these, 89.28% were received electronically i.e., through
the online portal Complaint Management System (CMS) and through email, as against
85.64% in the previous year.”
Disposal rate: “The disposal rate improved significantly from 92.36% during July 1, 2019 to
June 30, 2020 to 96.67% during July 1, 2020 to March 31, 2021, a five-year high.”
Appeals against the award: “The number of Appeals received against the decisions and
Awards of the Banking Ombudsmen (BOs) decreased from 63 during July 1, 2019 to June
30, 2020 to 23 during July 1, 2020 to March 31, 2021.”
2. The Ombudsman Scheme for Non-Banking Financial Companies, 2018
Complaints received: “The receipt of complaints at ONBFCOs stood at 26,957 during July 1,
2020 to March 31, 2021 increasing from 19,432 complaints received during July 1, 2019 to
June 30, 2020. Thus, an increase of 38.72% was witnessed, despite the current period being
short by a quarter.”
Disposal rate: “The disposal rate stood at 95.51% during July 1, 2020 to March 31, 2021 as
compared to 95.34% July 1, 2019 to June 30, 2020.”
Appeal against the award: “One Appeal was received against the decision of the NBFC
Ombudsman (NBFCO) during July 1, 2020 to March 31, 2021.”
3. The Ombudsman Scheme for Digital Transactions, 2019
Complaints received: “The number of complaints received at OODTs rose from 2,481 during
July 1, 2019 to June 30, 2020 to 2,946 during July 1, 2020 to March 31, 2021 of which

6
99.90% were received through electronic means.”
Disposal rate: “The disposal rate of complaints stood at 99.13% during July 1, 2020 to
March 31, 2021. Of the maintainable complaints, 57.54% were disposed through mutual
settlement/ agreement through intervention of the Offices of Ombudsman for Digital
Transactions.”
Appeal against the award: “No Appeal was received against the decisions and Awards of the
Ombudsmen for Digital Transactions (ODTs) during July 1, 2020 to March 31, 2021.”
All of the above facts and figures are the evidence of efficient working of the scheme. 6 The
resolution of the complaints was expedient and just. Also, the below figure shows that cost
incurred in handling the complaints reduced drastically, thereby reducing the burden. It is an
indication that RBI’s intervention through this scheme succeed in accomplishing its purpose.

Moreover, The RBI has been taking several initiatives to improve customer awareness on
extant regulations to protect consumer interests, alternative grievance redress mechanisms,
safe banking practices, etc., through various media and print campaigns. Earlier this year, as
part of the “Azadi Ka Amrit Mahotsav,” the Reserve Bank launched a Pan-India awareness
programme through Ombudsman Speak covering population in rural and semi-urban area.7

IX. CONCLUSION
The Banking Ombudsman is basically that has been created by RBI to look after banking
related complaints that general public may need assistance with. The Ombudsman is a senior
official, who has been appointed by the RBI to address grievances and complaints from
customers, pertaining deficiencies in banking services. It covers all kinds of banks including
6
Reserve Bank of India, “Annual Report on Banking Ombudsman Scheme”, 2020-21.
7
Reserve Bank of India, Press Release: Nation-wide Awareness Programme: November 2022, release no. 2022-
2023/1135

7
public sector banks, Private banks, Rural banks as well as co-operative banks. It was
originally established in 1995, it went through some major revisions in 2006 which covered
transactions pertaining to “complaints of ATM cards, debit cards and credit cards, deduction
of service charges by banks without prior intimation, unfair practices of banks and non-
compliance by direct sales agents (DSA) of banks for the services that were promised while
opening the bank account and more.”8
Later on this scheme was further pushed to cover sectors such as Non-Banking Financial
Institution and Digital Transactions in 2018 and 2019, respectively. Then, in 2021 these three
schemes were brought together by Integrated Ombudsman Scheme to remove the difficulty
posed by the earlier regulations. It did away with the requirement for the complainant to
figure out the head under which he/she must file the complaint, if did wrongly then complaint
used to get rejected. It further included the definition of “deficiency of services” to clear the
confusion in filing the complaint – Ombudsman used to reject complaint in absence of the
definition. This system of Ombudsman by RBI really simplified the grievance mechanism to
make it easy for the customers to seek resolution.
The facts and figures in the Annual Report for the year 2020-2021 by RBI is also an
indication of the positive results that came as a consequence of Ombudsman scheme. Most of
complaints received were through electronic means, thereby reducing the paper load.
Disposal rate of complaints stood at all-time highs under the three heads of Ombudsman
Scheme, and the most important indicator, i.e., appeals against the award, suggests that less
and less appeals were received; meaning award by the Ombudsman was satisfactory enough
to accept the decision. This indicates that objectives of RBI were achieved by the successful
implementation of scheme and establishment of Offices of Banking Ombudsman throughout
the country.

X. BIBLIOGRAPHY/REFERENCE
Websites –
1. The Economic Times, BFSI.com, published on 12th November, 2021. See
https://bfsi.economictimes.indiatimes.com/
2. Reserve Bank of India, FAQ. See https://m.rbi.org.in/
3. Bank Bazaar. See https://www.bankbazaar.com/
Reports & Circulars –

8
Bank Bazaar. See https://www.bankbazaar.com/saving-schemes/banking-ombudsman.html.

8
 1. Reserve Bank of India, Annual Report on Banking Ombudsman Scheme for year
2003-2004.
2. Reserve Bank of India, Annual Report on Banking Ombudsman Scheme for year
2020-2021.
3. Reserve Bank of India, Press Release: Nation-wide Awareness Programme:
November 2022.
Databases –
1. SCC Online.