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Banking Ombudsman Scheme

What is Banking Ombudsman (BO)?

• He hears customers’ complaints against banks.
• BO was first setup in UK.
• In India, RBI started this scheme in 1995.

Appointment & Tenure

• Earlier RBI used to appoint reputed persons from banking, finance, management, legal etc. sectors as Banking Ombudsmen (BO).
• But now RBI has reserved this BO post for its own Chief General Managers and General Managers.
• Tenure: 3 years at a time.
• Reappointment: yes possible.

Jurisdiction of Banking Ombudsman?

• Banking Ombudsman (BO) Scheme applies to whole of India (including Jammu and Kashmir).

Banking Ombdusmen have jurisdiction over

1. All commercial banks (scheduled and non scheduled, public and private)
2. Regional rural banks
3. scheduled primary co-operative banks
4. NBFCs (BO’s Jurisdiction limited to “loan” part.)

• Banking Ombudsman is not a replacement of Consumer forum/courts. He merely supplements them.
• Banking Ombudsman deals with matters less than or equal to Rs.10 lakhs.
• Here are some examples situation where BO can help you:

Regular banking

1. Demand draft, cheques, pay orders etc. not issued on time. (or not paid on time)
2. Credit card related complaints (e.g. bank putting hidden charges. Your credit card was stolen but bank did not disable it even after you called them.)
3. You asked the bank to close your account / credit card but they are not doing it.
4. Bank refuses to open your account without giving valid reasons.
5. Bank closes down your account without valid reasons.
6. Government / your company deposited salary / pension in your account but the bank is not releasing it on time.
7. Bank is taking out money from your account in pretext of some flimsy charges.
8. Branch office notice board says “10.30 to 5” but staff refuses to provide you service after 3.30PM.
9. NRIs having bank account in India and facing problems about remittances etc. (e.g. he deposited money from America, but his parents are not given money on time.)

Loans

1. Your loan application is not processed in time.
2. Your loan application is rejected without valid reasons.
3. You loan application is accepted but money is not released in time. (and still bank is  charging interest on it!)
4. Bank doesn’t follow RBI guidelines regarding loan-recovery agents (e.g. bank hires some criminals to bully and harass you.)
5. Bank doesn’t follow RBI guidelines regarding loan interest rates.

Procedure for getting justice?

• You’re unhappy with the bank for xyz reason.  But you cannot directly approach BO.
• First you’ve to give written complaint to the concerned bank that “I’ve so and so problem.”
• and IF the bank doesn’t deal with your complaint within one month, then you can approach BO.
• On the other hand, you cannot approach BO if the matter is older than 1 year.
• You don’t need lawyer to approach BO.
• You don’t need to pay any fees/ stamp papers for approaching BO.

You can’t approach BO in following situations

1. Matter is higher than Rs.10 lakh.
2. If the matter is pending before any other court, tribunal, forum then you cannot approach BO.
3. If any other court, tribunal, forum has already passed an order on the same matter.
4. You cannot approach BO for frivolous or vexatious complaints (e.g. AC or water cooler was off when I went to the branch. Someone jumped the queue but security guard did nothing….)

How does BO settle complaint?

• Upon receiving your complaint, first Banking Ombudsman will try to solve the matter via settlement /arbitration (=try to achieve a compromise, conciliation or amicable solution between bank and its customer.)
• This has to be done within one month after receiving complaint.
• But if either party (customer/bank) is not accept this (compromise/negotiation/settlement) then after 1 month, Banking Ombudsman will have to pass “order”.
• Now, he’ll ask both parties to present their case/documents etc. And he’ll pass the order accordingly.
• Two things can happen

1. He rejects your complaint (=bank is not guilty).  OR
2. He finds the bank guilty and orders punishment.

Punishment

• Banking Ombudsman (BO) can order the Bank to compensate the actual money loss OR Rs.10 lakh (whichever is lower).
• In case of Credit card related cases, BO can order the bank to pay additional fines (upto Rs.1 lakh) for the mental harassment caused to the customer.

Appellate authority for Banking Ombudsman

• If either party (Bank / Customer) is unhappy with Ombudsman’s order, then they can approach the Appellate authority (=Deputy Governor of RBI.)

1. If you’re the customer, you can directly approach him.
2. But if you’re the “Bank”, then you can approach him only after getting permission from your Chairman/CMD/MD or CEO. (This ensures Bank’s lower staff doesn’t automatically go for frivolous appeals against every order).

Reforms and Issues

• Banking Ombudsman scheme was originally started in 1995.
• But in subsequent years, RBI made many reforms in it, some of them are:

#1: Netbanking frauds

• According to RBI’s scheme, Ombudsman can also look into internet banking related matters.
• But Ombudsmen across the country often wash away their hands and ask the victim to wait for police investigation to finish.
• And on the other hand, Banks donot take responsibility saying “net banking frauds as most of them happen due to customers’ negligence and cyber-crime.”
• So ultimately customer has to depend on the police to get justice.

#2: Need more BOs

• A Committee formed by RBI has recommended that instead of having  only 15 Banking ombudsman across country, have one BO appointed for every bank.
• The upper limit (of Rs.10 lakh) should be increased.

Location of Offices

• Banking Ombudsman has total 15 offices throughout India
• Those who’re preparing for IBPS/SBI PO should prepare this table for MCQs, others need not worry much.

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