by Elton Gomes
The Reserve Bank of India (RBI) has tightened rules concerning the banking ombudsman scheme, with an attempt to strengthen the grievance redressal mechanism for customers. The apex bank has ordered that all commercial banks having 10 or more banking outlets will have to have an independent internal ombudsman (IO) to review customer complaints that are partly or fully rejected by the banks.
The RBI said, in a notification, that bank ombudsmen will have to be appointed for a fixed tenure and will report directly to the bank’s customer service committee. The RBI said that the IO should be people from outside the bank, which will give the post an independent status in a bank hierarchy.
Additionally, the IO’s tenure cannot be more than five years and the position is not open to reappointment. An IO also cannot be removed without consent from the RBI. This new post will not report to the banks CEO but to the customer service committee of the bank. All these factors are aimed at keeping the post independent, an RBI spokesperson said, the Economic Times reported.
As the banks shall internally escalate all complaints, which are not fully redressed to their respective IOs before conveying the final decision to the complainant, the customers of banks need not approach the IO directly. The implementation of IO Scheme, 2018 will be monitored by the banks internal audit mechanism apart from regulatory oversight by RBI, the RBI said in its notification, as per the Economic Times report.
Why has the RBI taken this step?
The RBI is seeking to ensure a tighter internal grievance redressal system at banks. The apex bank is also making sure that all complaints are addressed at the level of the bank and customers do not have to approach others for redressal. It can be said that the RBI has set up a tighter grievance redressal system keeping in mind the increasing number of scams, with the most recent scam being that of the Punjab National Bank (PNB).
In February 2018, the state-run lender PNB revealed that it had been defrauded by Rs 11,400 crore by jeweller Nirav Modi, his family members and his business partner Mehul Choksi. Thereafter, the State Bank of India (SBI) fraud came to light wherein jewellery network Kanishk Gold Pvt Ltd (KGPL) was involved. KGPL was accused of defrauding a consortium of 14 banks by Rs 824.15 crore.
In 2016, 380 fraudulent accounts started by four persons defrauded Syndicate Bank of Rs 10 billion. The accounts used fake cheques, LoUs, and LIC policies to dupe the bank.
Setting up of the Internal Ombudsman mechanism
The IO mechanism was established with a view to strengthen the internal grievance redressal system of banks and to ensure that customers’ complaints are addressed at the level of the bank itself. The redressal itself would be through an authority placed at the highest level of the bank’s grievance mechanism.
In an attempt to enhance the independence of the IO while strengthening the monitoring system over functioning of the IO mechanism, RBI has reviewed the arrangement and has issued revised notifications under the Banking Regulation Act.
In its annual report 2017-18, the RBI hinted at employing technology to develop more consumer-centric policies in financial transactions. Among such policies was setting up of an ombudsman scheme for complaints related to non-banking financial companies and a separate ombudsman for digital transactions.
Elton Gomes is a staff writer at Qrius