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ROLE OF BANKING OMBUDSMAN AS A GRIEVANCE REDRESSAL FORUM: AN OVERVIEW
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ROLE OF BANKING OMBUDSMAN AS A
GRIEVANCE REDRESSAL FORUM:
AN OVERVIEW
AUTHORED BY - C A SHREYAS NARAYANA
LL.M. 2023-24
Gujarat National Law University
ABSTRACT
Banking Sector in India has a huge role to play for the country’s economy
and the banking activities all over
the country has also been increasing year by year. In the course of this increase in the banking activities, no. of
customers involved are also increasing. Is there potential mechanism to address
their grievances, if any? Does any Law in the country
provide for the speedy disposal
of banking services
related grievances? This article tries to give a brief
idea as to what are the laws available for the redressal of banking
related grievances, how to get the
grievances redressed and attempts to analyse the position of banking ombudsman
as a grievance resolution forum with
the help of the secondary
data available.
I.
INTRODUCTION
In India, banking sector is one of
the fastest growing sectors for our Indian economy and customers involved in the banking sector in India are more.
Banking sector is one sector which
involves huge inflow and outflow of money and therefore, grievances are most common for customers, thus to address the grievances of customers, Reserve Bank
of India, in pursuance of section 35A of Banking Regulation act,1949, brought
in Banking Ombudsman Scheme 1995 was
brought in and revised in 2002. Presently, Banking
Ombudsman Scheme 2006 is in operation, whereby Banking Ombudsman, a quasi-judicial authority
has been set up with an objective
of providing a forum for bank customers for easy, timely and
inexpensive settlement of disputes in case if there are any. This banking ombudsman Scheme is applicable all over the
country and all types of banks such
as scheduled banks, co-operative banks, commercial banks, etc are covered
under the scheme.
The
banking industry provides
opportunities for investors
and directs available
resources towards the
improvement and sustainability of trade, commerce,
and industry.
Consequently, an systematic and
structural system in the banking field is essential for the development of the economy at a national level . To achieve
this, it is crucial to introduce
checks and balances within the system to reduce drawbacks and improve administration. Additionally, the quality
of a bank's services is directly linked to customer
satisfaction, which, in turn, influences the bank's reputation and growth. Since
banking is considered a public utility service, there has been a decline
in the quality of services provided
to the public, leading to grievances that often go unresolved. Recognizing this issue, a separate forum
was deemed necessary to address and resolve
such complaints, despite the existence of the Consumer Protection Act of
1986 and the court system. However,
these forums are currently overwhelmed with an increasing number of cases.
In the banking sector, customers have
various grievances. The Reserve Bank of India
(RBI) receives a flood of complaints and forwards them to the relevant
banks. Banks are required
to respond and confirm the resolution of customer grievances, even if only on
paper. Despite the implementation of numerous recommendations by committees, commissions, and working groups since
1972, the quality of customer service in banks
has not significantly improved. Criticism from the media, the public, and parliamentary committees continues.
The
Committee under the chairmanship of ‘Narasimham’, has focused sectoral
reforms in sectors such as
Banking and finance and scrutinized these crucial domains and proposed the incorporation of the
"Banking Ombudsman Scheme 1995" within the ambit of the Financial Sector Policy and Systems Reforms
spanning from 1991-92 to 1995-96.
These recommendations were pivotal, especially considering the evolving customer
needs and the ongoing liberalization of banking and financial sectors.
Responding to these recommendations, the RBI endorsed the suggestion,
and on June 14, 1995, Dr. C.
Rangarajan, the Governor, made public the inception of the "Banking Ombudsman
Scheme." This initiative was implemented in accordance with the provisions outlined in the Banking Regulation Act of 1949, encompassing all Scheduled Commercial Banks and Scheduled Primary
Co-operative Banks operating in India. It has been functional since June
1995.
At an initial phase, Ombudsman positions
were established on a full-time basis in 3 centers:
‘Mumbai’, ‘New Delhi’, and ‘Bhopal’. However, the scope of their operations has since widened. The primary objective
of the ombudsman framework is to offer a prompt
and economical avenue for resolving customer grievances arising from deficient banking services. Subsequently, the
banking ombudsman is tasked with addressing public
complaints related to inadequacies in various banking services, encompassing the handling of deposit accounts
and loans and advances.
1.1 Hypothesis
The Banking Ombudsman scheme has provided for an effective
grievance redressal mechanism for the
disposal of Banking Related Grievances.
1.2
Literature Review
In their research, “P. Suganya and R. Eswaran” pose
fundamental questions regarding the
recourse available to individuals in India for addressing grievances with
banks. The query revolves
around whether individuals can seek redress
from the Banking
Ombudsman when confronted with issues related
to banking services.
Indeed, the adjudicatory mechanism,
Banking Ombudsman is an institution established by the Apex Bank of India (RBI) to address
and resolve grievances\complaints pertaining
to banking matters. To illustrate this, consider a scenario: when
attempting to withdraw Rs. 500 from
an ATM, a transaction failure occurs, resulting in a debit of Rs. 500 from the account. Such a situation can be exasperating and vexing. Individuals often report this
problem to their bank, expecting a prompt resolution. However, despite assurances from the bank that the money
will be refunded, weeks pass by without any action. This frustrating cycle continues for six months,
during which numerous
attempts are made to
rectify the issue, but there is no responsive
action from the bank.
The intriguing aspect here is whether
one can envision receiving compensation of Rs.
16,200 due to the bank's failure to adhere to RBI's regulations. It may seem implausible, but it is a possibility that has materialized. This article explores
the authority vested in
the Banking
Ombudsman and the efficacy of Ombudsman officers
in addressing complaints.
Singh Rajdeep (2016) conducted
a study that uncovered
a noteworthy distinction between the behaviour of the rural sector
compared to urban and semi-urban sectors regarding banking
complaints. The primary
reasons behind this divergence are the rural
population's lack of awareness and proficiency in initiating complaints
against banking malpractices.
Additionally, Singh's research revealed that complaints against public banks are more prevalent. However, there
has been an improvement in the grievance resolution rate, which rose from 94% to 96% between 2010-11
and 2014-15.
1.3 Objectives
·
To
know about the Banking Ombudsman Scheme
·
To
have a brief idea as to the kind of complaints\grievances received by the ombudsman
1.4
Research Methodology
This is research undertaken to impart
a brief idea about the redressal forum, banking ombudsman and to analyse the role of the banking ombudsman and
therefore this research includes
the primary data such as the laws relating to the Banking
Ombudsman and the secondary
data such as the statistics available with regard to the banking ombudsman
for the analysis of the role.
II. BANKING OMBUDSMAN
Under the
Banking Ombudsman Scheme, 2006 (hereinafter referred to as Scheme/The Scheme) An officer
in the rank not less than Chief General
Manager or General manager
will be appointed as ombudsman by The RBI with defined territorial
jurisdiction to receive and adjudicate
the complaints.
The
territorial jurisdiction of the banking ombudsman will be prescribed by Reserve Bank of India, i.e., the territorial
limits within which the ombudsman shall exercise his
authority will be prescribed by the Reserve Bank of India. Further,
the office of the forum, banking ombudsman shall be at such place as the Apex Bank specifies.
The Pecuniary
Jurisdiction: The Forum, Banking Ombudsman has the jurisdiction to exercise the powers matter irrespective of
the monetary value involved in it. However, Banking
Ombudsman does not have authority to pass awards over the Two million rupees. Additionally,
he cannot pass the award for more than the amount
of loss suffered by the customer/complainant.
The Banking
Ombudsman appointed will have a tenure of 3 years from the date of appointment.
2.3 Matters which the Banking Ombudsman
can take cognizance of
There are broad categories of matters that the Banking Ombudsman
can take cognizance of which are as follows
A. In relation to services rendered
by the bank
i.
Delays in Credit Proceeds: Customers may complain about
delays in the processing and crediting of funds to their savings or current
accounts.
ii.
Refusal to Open Deposit Accounts: Complaints may arise
when a bank refuses to open a deposit account by providing no valid justification
for the refusal.
iii.
Unauthorized or Fraudulent Withdrawals: Customers may
file complaints when they experience unauthorized or fraudulent withdrawals from
their deposit accounts or fraudulent encashment of a check.
iv.
Refusing the Acceptance of Small Denomination Notes:
Customers may face difficulties if a bank refuses to accept small denomination
notes without a valid cause.
v.
Non-Payment or Delay in Payment/Collection of Checks:
Complaints can be filed when a bank fails to pay or collect checks, drafts, or
bills on time or does not make the payment at all.
vi.
Levying of Charges without Adequate Notice: Customers
may object to banks imposing charges by not providing adequate prior notice.
B.
Complaints related
to Loans and Advances:
i.
Delay in Loan Processing: Customers may complain about
delays in the sanction and disbursement of loans, especially when it exceeds the
prescribed time frame.
ii.
Non-Sanctioning of Loans without Reason: Banks should
provide valid reasons in writing when they refuse to sanction loans, and customers
can complain if this is not done.
iii.
Non-Compliance with RBI Interest Rate Directives:
Complaints may be filed if a bank does not adhere to RBI’s directives regarding
interest rates on loans.
C.
Complaints related
to Online Banking and Debit/Prepaid Cards:
i.
Account Debited, Cash Not Dispensed at ATM: Customers may
complain if their account is debited, but they do not receive the cash they attempted
to withdraw from an ATM.
ii.
Multiple Debits for One Transaction: If a customer's
account is debited more than once for a single withdrawal at an ATM or a point of
sale (POS) transaction, they can file a complaint.
iii.
Incorrect ATM Cash Dispensation: Complaints can be
made if ATMs dispense an incorrect amount of cash, either less or more than the
requested amount.
iv.
Unauthorized Debit Transactions: Customers may
complain if their account is debited without their card being used or without their
card details being involved in the transaction.
v.
Use of Stolen/Cloned Cards: Complaints can be filed if
a customer's card is stolen or cloned and used for unauthorized transactions.
D. Non-Compliance with RBI Directions: Customers can complain if the bank fails to comply with any directives issued by
the RBI related to banking services, loans, or card transactions.
Customers
can typically file these complaints through various methods provided by the
bank, including in-person visits, phone calls, written letters, or online
complaint portals. The bank is obligated to address these complaints and
provide resolutions in a timely manner, ensuring that customer rights are
protected.
Any person, having a
grievance, can make a compliant to the
Banking Ombudsman exercising the territorial Jurisdiction,
by filling the form which shall contain the following details:
i.
“the name and
the address of the complainant,”
ii.
“the name and address
of the branch or office
of the bank against which the complaint is made,”
iii.
“the facts giving rise to the complaint,”
iv.
“the nature
and extent of the loss caused
to the complainant,” and
The
Complaints may be filed through online mode as well, which shall be accepted by
the Banking Ombudsman.
2.5 Comparison of Banking
Ombudsman Schemes of 1995 &
2006
Regarding
bank coverage, the 1995 Scheme primarily encompassed commercial banks and
Scheduled Primary Co-operative Banks physically present in India. However, the
2002 Scheme broadened its reach by including entities such as Regional Rural
Banks, the State Bank of India, and 'subsidiary banks' defined in Part I of the
Banking Regulation Act, 1949. Additionally, even Scheduled Commercial banks
fall within the ambit of the latest 2006 scheme.
The Ombudsman Scheme lays out
specific criteria for accepting complaints. Over time, there has been a consistent trend of broadening the Ombudsman's
authority. The RBI has expanded the
banking ombudsman's duties to cover issues related to credit cards, service deficiencies pledged by bank sales
representatives, unnotified service charge impositions, and non-compliance with banks' fair practices code.
To bolster the scheme's
effectiveness, the RBI has taken on the roles of recruitment and funding. It now permits complainants to
submit their grievances electronically and appeal to the RBI regarding decisions made by the banking ombudsman. Initially introduced by the RBI on June 14, 1995, under Section 35A of the Banking Regulation Act, 1949 (10 of 1949),
the Banking Ombudsman
Scheme aimed to establish a swift and economical method
for addressing customer complaints. It was revised twice in 2002 and
2006 and is currently governed by
Banking Ombudsmen appointed by the Reserve Bank in 15 locations accross the country.
Hence, considering the aforementioned
comparisons, it can be deduced that there has been a significant shift in the Banking Ombudsman
Scheme 2006 concerning scope and jurisdiction.
2.6 Overview of Mechanisms Available in Other Countries
Ombudsman for Banking Services and
Investments (OBSI): Established in 1996 in
Canada under the name Canadian Banking Ombudsman, OBSI was created to
address complaints from small
businesses against chartered banks[5].
At present, OBSI boasts over 600
member firms within the banking services and investment sectors. Any regulated
firm engaged in banking services or
investment activities can join OBSI. Its main function involves mediating conflicts between these participating firms
and their customers when they're
unable to resolve these disputes on their own.[6]
Swiss
Banking Ombudsman: The
Swiss Banking Ombudsman, established in April 1993, manages particular grievances against Swiss-based banks. With
the backing of the Swiss Banking
Ombudsman Foundation, formed by the Swiss Bankers Association, it has been addressing an increasing volume
of inquiries, reaching
an average of about 1,400 each year.
According to its 2011 annual report, the Swiss Banking Ombudsman
received a total of 1,889 cases, a
slight decrease compared to 2010[7].
Financial
Ombudsman Service: This UK-based institution specializes in addressing consumer complaints related
to banking services.
It handles financial
disputes encompassing banking,
insurance, pensions, loans, stocks, shares, and more. In the annual report issued for the
financial year,2010-11, it was
observed that the no. of banking complaints had decreased by 9%[8].
Office of the Comptroller of the Currency
(OCC): The OCC, operating in the United States,
holds the responsibility of chartering, regulating, and overseeing all national
banks, federal savings associations,
as well as supervising the Federal branches and agencies of international banks. Through onsite
evaluations and continual oversight, the OCC ensures the proper functioning
of national banks and federal savings
associations. Among its regulatory powers are the examination of
banks and thrifts, approval or denial of proposals for new charters, branches, capital, and changes in corporate
or banking structures, as well as taking supervisory actions
when necessary[9].
3
THE
INTERRELATION BETWEEN BANKING OMUBUDSMAN SCHEME AND THE CONSUMER PROTECTION
ACT,2019
The COPRA,
2019, mainly aims at protecting interests of Consumers and for the resolution
of consumer disputes. Section 2 (42) of the Consumer Protection Act[10] provides for
the definition of “Service” which includes Banking Services as well. Along
Side, definition “Deficiency” provided under the Act[11] says that
deficiency means faulty, or shortcoming, inadequacy in quality or nature of service.
Thus, Consumer Protection Act,2019 includes the redressal of disputes of
consumers for deficiency of Banking Services to Consumers. However, its not
ideal to burden the consumer disputes forums at all levels with banking cases
as well. Therefore, in order to provide an exclusive dispute resolution
mechanism for deficiency of banking services, Reserve Bank of India, under
section 35A of the Banking Regulation Act 1949, has brought in Banking
Ombudsman Scheme 2006.
Both, Banking Ombudsman Scheme and The
Consumer Protection Act, strive to achieve the same object,
i.e., protecting interests of consumers and resolution of disputes with regard to deficiency in banking services. Thus,
Banking Ombudsman Scheme indirectly, aims to
achieve the goals of Consumer Protection Act. In this way, it can be
said that, Banking Ombudsman
and The Consumer Protection Act are interrelated.
However, the Consumer Protection Act's ascendancy over the Banking Ombudsman
Scheme due to the following reasons:
i.
The redressal forums are established at multiple levels,
including district forums
at the district level, state commissions at the state level, and a national
commission at the national level. In cases where a complainant is
dissatisfied with the national
commission's decision, they have the option to file their case in the Supreme Court, India's highest judicial
authority.
ii.
The
scope of redressal under the Consumer Protection Act is comprehensive in terms of both original and appellate
jurisdiction. District forums have original jurisdiction, state commissions wield original
and appellate jurisdiction, national
commissions possess original and appellate jurisdiction, and the Supreme
Court holds appellate jurisdiction.
iii.
The Consumer
Protection Act allows customers
to file complaints against banking service deficiencies without
requiring the complainant to be the bank's customer
exclusively. Authorized representatives of bank customers, banking customer welfare associations, as well as Central and State Governments, among others, can also act as complainants.
iv.
Orders
issued under the Consumer Protection Act encompass the calculation of damages
suffered by the complainant.
v.
Failure
to comply with the orders issued by the consumer redressal forums results
in penalties being imposed on the
party found at fault.
Since,
COPRA,2019 sets up adjudicatory mechanisms at different levels, it has
superiority over the Banking Ombudsman. Nevertheless, Banking Ombudsman Scheme
holds its significance intact by providing the redressal mechanism at the lower
level with a speedy disposal mechanism.
Based on
the data provided, it's evident that customer awareness has grown steadily over
the years. Despite a rising number of cases carried over annually, there's a
consistent effort in handling and resolving them. The increasing rate of case
handling reflects an effective disposal mechanism, alleviating pressure on
consumer courts. This approach safeguards customer interests, fostering a
healthier relationship between banks and their clientele.
The research reveals the following:
·
Over time, there has been a rise in customer awareness
regarding the Banking Ombudsman.
·
The effectiveness of Banking Ombudsmen in handling and
resolving cases has been evident.
·
There's a consistent increase in the number of cases managed
and resolved by banking ombudsmen annually.
Banks,
being the one of the important institutions rendering broad range of services
to the customers, also have the duty to provide the services with due
diligence, in the event of faulty rendering of services, banking ombudsman comes
for the rescue by adjudicating the dispute and keeping up the relationship between
the customer and the banker. Banking Ombudsman, having such an important role, shall
also be adjudicating the disputes cautiously and shall always need to handle the
disputes efficiently for maintaining the trust, reputation and to avoid backlogs
and ultimately providing the customer satisfaction.
BIBLIOGRAPHY
Acts
1.
Banking Regulation
Act, 1949
2.
Banking Ombudsman
Scheme, 2006
3.
Consumer Protection
Act, 2019 Annual Reports
a.
Annual Report
on Banking Ombudsman By RBI
Research Articles
1.
Riya Rupani and Shaukat Ali, An Analytical Study on
the performance of Banking Ombudsman Scheme in India, published by Journal of Management Research and Analysis.
[1] Banking Ombudsman Scheme, 2006, Clause 7
[2] Banking Ombudsman
Scheme, 2006, Clause 4.
[3] Banking Ombudsman Scheme, 2006, Clause
9.
[4] Banking Ombudsman
Scheme, 2006, Clause 9.
[7] Swiss
Banking Ombudsman, http://www.bankingombudsman.ch/en
last accessed on 28-09-2023 at 6: 47 Pm
[8] Financial Ombudsman Service, http://www.financial-ombudsman.org.uk/about/ind Last Accessed on 28-09- 2023 at 6: 57 pm
[9] “Comptroller of the
Currency (OCC)”, “http://www.helpwithmybank.gov/about/index-about.html,”
last
accessed on 28-09-2023 at 11:27 pm
[10] “Consumer Protection Act, 2019”,
Act 35 of 2019, Section
2(42).
[11] “Consumer Protection
Act, 2019”, Act 35 of 2019.
[12] “Annual Reports on Banking Ombudsman Scheme, By
Reserve Bank of India, https://rbi.org.in/Scripts/PublicationsView.aspx?id=18052#C8,” Last accessed on (29-09-2023, 20:06)
Article Information
ROLE OF BANKING OMBUDSMAN AS A GRIEVANCE REDRESSAL FORUM: AN OVERVIEW
Authors: C A SHREYAS NARAYANA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/01/29
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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