Paper Details
Paper Code: RP09V12023
Category: Research Papers
Date of Publication: December 06, 2023
Citation: Ms. Namrata Chakrabarty, “The Effectiveness of Indian Banking Ombudsman on Its Customers”, 1, AIJIPCA, (2023).
Author Details: Ms. Namrata Chakrabarty, Advocate, Gauhati High Court, Email: nchakrabarty280@gmail.com
ABSTRACT
In India, the Banking Ombudsman was first established in the year 1995 through a scheme that was subsequently amended two times, in 2002 and 2006. Since 2006 the Ombudsman has been given a new dimension and shape for efficient functioning in solving banking disputes arising during banking transactions with the customers amicably and without resorting to adversarial systems of dispute settlement. However, with the change of time, several new issues emerge that demand changes in every existing system for which all such established systems need to adjust to such changing situations. Similarly, changes had been made in the Banking Ombudsman Schemes from time to time to adjust to such changes. This paper will therefore try to analyze the evolution of the Banking Ombudsman System for addressing the grievances of customers arising out of banking transactions in India.
KEYWORDS
Amicable Settlement; Banks; Grievances; Ombudsman; and Reserve Bank of India
Introduction
In general terms, an Ombudsman is an individual who has been selected by an association to address the complaints or grievances in respect of the association. Through an ombudsman, the organization tries to solve the complaints or address the grievances in respect of that association without resorting to judicial proceedings that is Court. Thus, an ombudsman is a non-adversarial arbitrator of a conflict, placed in a subordinate position to an “adversarial adjudication”. Banking Ombudsman is those institutions that try to resolve disputes arising out of banking transactions between customers and the banks and in certain cases even between different banks also. Such an ombudsman is established by schemes with proper regulatory mechanisms. Similarly, in India also several schemes have been implemented from time to time to make the banking ombudsman an efficient mechanism for solving banking disputes amongst which the scheme of 2006 is most important. This paper will therefore attempt to understand how a banking ombudsman has been established in India to understand its efficiency in dealing with emerging cases of bank disputes.
Conceptual Framework
Sir Lawrence Sherman, who was a banking ombudsman of the UK, said that “an ombudsman is neither a champion nor the defender of the banks; he is an independent arbitrator for fair settlement of disputes arising between the banker and the customer”.[1] P.H Collins enumerates in the dictionary of banking “an ombudsman is an official who investigates complaints by the public against Government Department or other large organization”,[2] The Banking Ombudsman Scheme was for the first time instituted in the U.K. in 1986. Within a short period, it grew into a well-known and competent agency for resolving conflicts in banking. “The Banking Ombudsman Scheme of the UK established a tripartite structure that consisted of the Board of Directors, the Governing Council, and the Ombudsman being assisted by the Resident Banking Adviser”.[3]
The Banking Association of India had formed, a sub-committee, in 1992 to analyze the prospects of forming an ombudsman-like structure for Banks in India. For this purpose, Sir Lawrence Sherman was invited to India to indent the officials of the bank regarding the functions and significance of the idea of the ombudsman. Thereupon, the Reserve Bank of India (RBI) developed the concept of banking ombudsman, which came into operation on June 14th, 1995.
In India banking ombudsman has been established as a “quasi-judicial authority”, working under India’s Banking Ombudsman Scheme, which was formed in furtherance of a resolution taken by the Indian government to facilitate the determination of grievances of bank customers concerning certain utilities provided by the banks. The Banking Ombudsman Scheme provides a speedy and affordable platform for the customers of the bank for easy redressal of their grievances concerning the utilities delivered by the banks. The Banking Ombudsman Scheme was brought in by the Banking Regulation Act 1949 under Section 35A by RBI with effect from 1995. However, the Banking Ombudsman possesses a confined jurisdiction which was decided in “M/S Durga Hoks Complex Case[4]”, where the basis of the grievance was transferred to a different complaint stage, the complaint sheds its ground of law. That is to say, the subject matter of the grievance should not be imminent in a different court or bench or before an arbitrator when the complaint is registered and also when the complaint is engrossed for scrutiny and determination. The basic vision of the Banking Ombudsman is to stand as a transparent and dependable process of conflict redressed system for the masses using the services of the Bank.
The targets of the scheme of the Banking Ombudsman can be enumerated as follows:
a. To ensure that the bank customers are getting their disputes resolved in an affordable, speedy, and just manner so that banking services in the country will be further improved over time.
b. To give a review or suggest measures to RBI concerning the composition of suitable and periodical directions or standards to other banks to ameliorate the standard of utilities provided to the customers and to make their system of internet conflict resolution firm.
c. To embellish the knowledge of the banking ombudsman scheme.
d. Using Information Technology and its exhaustive and smoothly available databases for speedy and just disposal of grievances.
The expositions for the appointment of the banking ombudsman scheme are:
a. To assist the progress of speedy settlement of grievances against the banks and also between the banks concerning utilities it provides and problems.
b. To enhance the quality of customer service by keeping provisions for penalties in cases of misconduct and compensation to the victim.
c. To enhance the customer's vigilance concerning their rights and attain effective recognition from the bank.
d. To disseminate social accountability among bank staff and therefore ameliorate banking services and staff proficiency.
e. To embellish competitiveness among the banks in India by ensuring careful management of business proceedings.
Growth of Banking Ombudsman
The banking system provides for favorable circumstances financiers and transmits the assets accessible for the development and subsistence of the market, merchandise, and commercial enterprise therefore an effective system of banking is required for the ushering of the domestic economy. And, in such an arrangement, the scheme of “checks and balances” must be imported to abate incompetence and misconduct. Besides the parameter of banking service is highly relied upon the service catered by the banking staff to its consumers and the like ascertains the eminence and progress of the bank. Since banking services are mass utility services and because of the corroding services served to the masses and also having apprehension to the matter that services so carried out by the banks in a reckless way, which were not only inadequate but also exiguous in procedure and such a condition of density and affliction, the bank customers were forced to move from one place to another in search of a remedy which they rarely acquired, so the authority felt the need to have distinct machinery to address and adjudicate such complaints and grievances.[5] Though the Consumer Protection Act 1986 or courts used to manage the aforesaid task, however, the forum of consumer protection was pressured by the disquieting acceleration in the rate of cases. In the realm of banking, as the consumers were involved, their complaints were profuse and multifarious.
The Reserve Bank of India was also delegated with grievance redressal powers. They entertained grievances and transmitted them to the bank concerned and then the banks were further necessitated to endure a statement of opinion and assure that the complaint of the victim was properly addressed. Irrespective of the matter of whether it was addressed or not, transactions through paper did take place. The sector of banking was continuously under faultfinding by committees, masses, and the press. Various reviewing committees, commissions, and working groups were established to proceed further into the matter in 1972. “The Banking Commission headed by Sri R.G Saraiya followed by Sri R.K Talwar whose 1972 recommendations and last report to the Goiporia committee was a step further as to the sustained anxiety of RBI towards the improvement of customer services in banks”.[6] The banks had applied the recommendations to a larger magnitude but still, there were no fruitful results in the banking sector and the fields of inefficiency were still evident and were glaringly seeable. “The Narsimhan Committee on Banking and Financial Sector Reforms examined these critical areas and recommended the introduction of the banking ombudsman scheme 1995 of financial sector policy and system reforms 1991-92.”[7]
The recommendations were very much important and were indeed a necessity and where appropriate in the evolving requirements of the bank -customers and in an environment where the customers were becoming vigilant about their rights, day by day. “In this backdrop, RBI accepted the recommendations as a part of their banking policy, Dr. C Rangarajan, the governor, announced the banking ombudsman scheme on June 14, 1995, the scheme was issued under the provision of Banking Regulation Act 1949, which covers all Scheduled Commercial Banks and the Scheduled Primary Cooperative Banks having business in India”.[8] The scheme came into operation in June 1995. In its antecedent stage, the ombudsman was selected regularly in three regions- “Mumbai, New Delhi, and Bhopal”, but afterward its foundation for the transaction has been widened. The basic goal and intention of the banking ombudsman were to render speedy and affordable procedures to solve complaints of customers evolving from the inadequate services provided by the banks. Therefore, the banking ombudsman was in a position to take concern of public grievances against inadequacies in the utilities provided by the bank concerning activities of personal accounts, loans, or advances. The model shift that took place in Banking Ombudsman 1995 to Banking Ombudsman 2006, have beyond the years widened the ambit and jurisdiction of the banking ombudsman areas which were previously not covered. This process of extension has taken place in the following ways:
I. Encompassment of Banks -
The scheme of 1995 encompassed only those “Commercial Banks” and Scheduled Primary Cooperative Banks, which had made India a business place. “The 2002 scheme broadened the operation of the ombudsman scheme by including within the definition of ‘bank’ such entities as Regional Rural Banks, State Bank of India and Subsidiary Bank as defined in part I of the Banking Regulation Act 1949, even the Scheduled Commercial Banks are covered under the latest scheme of 2006.”[9]
II. Receive of Grievances-
The scheme of the ombudsman enumerates certain criteria based on which grievances or complaints will be received. During these years the rage has been to augment the area of authority of the ombudsman. Reserve Bank of India has enlarged the ambit of the ombudsman to accommodate grievances of customers regarding credit cards, the inefficiency of the bank staff in providing assured services; imposing taxes on services without any antecedent notice to the customers, and inconstancy to the standards and uniform codes of individual banks. In pursuance of establishing the scheme as efficient, RBI has resolved to take responsibility for the recruitment and financing of the scheme. It has also permitted for online registration of complaints by the aggrieved ones and also to further appeal in opposition to the decision given by the Banking Ombudsman. “The Banking Ombudsman Scheme 1995 was notified by the Reserve Bank Of India on June 14th, 1995 in terms of the powers conferred on the banks by section 35A of the Banking Regulation Act 1949 (10 of 1949) to provide for a system of redressal of grievances against banks.”[10] It desires to come up with a framework for speedy and affordable settlement of customer grievances. This scheme which is in action from the year 1995 has been amended two times i.e. in 2002 and 2006. The scheme is implemented and managed by a banking ombudsman who is elected by RBI at 15 centers encompassing the whole nation.
Analysis of the Banking Ombudsman Scheme
1) Powers and Jurisdiction Of A Banking Ombudsman-
i. RBI shall designate the areas in which the officials of the banking ombudsman shall exercise their powers.
ii. “The Banking Ombudsman shall receive and consider complaints relating to the deficiencies in banking or other services filed on the grounds mentioned in clause 8 irrespective of the pecuniary value of the deficiency in service complained and facilitate their satisfaction or settlement by agreement or through conciliation and mediation between the bank concerned and the aggrieved parties or by passing an Award as per the provisions of the Scheme.”[11]
iii. The “banking ombudsman” will discharge the usual functions of administration and authority over this office and he shall be accountable for the regulation of business therein.
iv. The office of the banking ombudsman will attenuate a yearly budget for itself in discussion with RBI and shall exert the powers of expenditure following the rules of “Reserve Bank of India Expenditure Rules,2005”.
v. The Governor of RBI will be sent a report by the banking ombudsman, annually on 30th June, which will include an approximate analysis of the tasks of his office undertaken during the preceding financial year and shall provide such relevant information as the RBI. The RBI may also, if necessary, circulate or publicize such information.
2) Procedure for Redressed of Grievance-
i) Grounds of Complaint:
“Any individual may register a complaint with the banking ombudsman having jurisdiction on any one of the following grounds alleging deficiency in banking including internet banking or other services.”[12]
a) Default or extravagant deferment in the payment or acquisition of cheques, promissory notes, receipts, etc.
b) Refusal to accept notes of lower denomination, without any reasonable cause, and adjuring commission therein.
c) Refusal to accept “coins tendered” without any reasonable cause.
d) “non-payment or delay in issue of drafts”
e) In case of a situation where the bank has failed to disperse promissory notes, cheques, bills, etc
f) Non-compliance with the directed hours of the working period.
g) “delays, non-credit of proceeds to parties accounts, non-payment of deposit or non-observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in any savings, current or other account maintained with a bank”[13]
h) Grievances from NRIs who have accounts situated in Indian banks concerning the remittances from foreign, money in the banks, and other allied matters.
i) Where the bank has without any rational cause declined a customer to open a bank account.
j) Imposing charges without any antecedent communication to the customers.
k) Instances where the banks or any other subsidiary banks have not complied with the guidelines specified by the Reserve Bank of India, concerning ATM/Debit Cards.
l) Non-compliance with the regulations of RBI concerning mobile banking or E-Banking service in India on the matters mentioned below-
i. Deferment or inadequacy to actuate E- e-payment
ii. Paying money that is not authentic, by electronic medium.
iii. Non-compliance by the bank subsidiaries to the regulation relating to credit card transactions.
m) Non-payment or deferment in payment of pension
n) Denial to receive deferment in receiving payment made concerning tariffs as needed by RBI or government.
o) Repulsion in issuing or deferment in issuing of government services.
p) Compulsive termination of depository accounts without any notice and any reason.
q) Rejecting to terminate or deferment in terminating the accounts.
r) Non-compliance to the “fair practices code as adopted by the bank”
s) Not adhering to the RBI directions on the appointment of recovery agents by the bank.
t) Non-compliance to the directions given by RBI regarding para-banking activities.
u) Other issues concerning the breach of the guidelines published by RBI concerning banks or banking services.
3) Process for Filing Complaint-
An individual who has a complaint against a bank or concerning any one of the grounds as given in “clause 8” of the scheme, may on his own or by his representative, register a grievance to the authorized Banking Ombudsman who has jurisdiction within the area where the said bank is situated. But in case the said grievance concerns credit cards, the complaint shall be registered to the banking ombudsman who possesses jurisdiction within the area where the bill location the customer is situated.
“The complaint in writing shall be duly signed by the complainant or his authorized representative and shall be, as far as possible, in the form specified in Annexure or as thereto as circumstances admit, stating clearly”[14] :
i. The name and place of residence of the victim
ii. The concerned bank’s name and address
iii. The facts of the complaint
iv. The character and magnitude of the loss occurred
v. The remedy desired
“The complainant shall register along with the complaint, copies of the documents which he possesses to rely upon and a declaration that the complaint is maintainable and a complaint made through electronic means shall also be accepted by the banking ombudsman and a printout of such complaint shall be taken on the record of the banking ombudsman.”[15]
However, the “banking ombudsman” shall not receive any complaint unless-
a. The complainant had at first given, before going to the “banking ombudsman”, a handwritten statement of the grievance to the concerned bank and received no reply a delayed reply, or an unsatisfactory reply.
b. The complainant had moved to the banking ombudsman within one year of receiving the response from the bank and one year & one month of making the representation to the bank where no reply was given.
c. The grievance is not related to the identical cause of action which was already determined by the banking ombudsman in a previous case.
d. The grievance is not related to the exact cause of action which is already pending in front of any court, tribunal, or arbitrator.
e. The complaint is not trivial or bothersome.
f. The grievance was registered in the period given under the Limitation Act 1963.
4) Authority To Demand Information-
To execute his responsibilities as given in the scheme, a banking ombudsman has been vested with the power to call for information or inspection of any documents, records, or books from the concerned bank or any other bank. The banking ombudsman will look after the maintenance of confidentiality of those documents. However, the banking ombudsman, to adhere to any statutory necessity, reveal any documents of a party to the other party.
5) Settlement of Complaint by Agreement-
After the complaint has been settled between the parties, “the banking ombudsman” shall dispatch copies of the complaint to the concerned bank under the recommendation of the Nodal Officer stating his attempt to endorse settlement by agreement between the parties. And for this purpose, the banking ombudsman is not required to follow any evidence rules and he can pursue any method which he regards as fair and just.
However, if the ombudsman finds the documentary and other written pieces of evidence non-satisfactory then it may call the customer as well as the bank in dispute and organize a meeting between the two for an amicable settlement of the dispute concerned.[16]
The banking ombudsman will consider the complaint solved under the following situations-
a. In a case where the grievance was solved by the respective bank with the support of the “banking ombudsman”.
b. The bank customer gives his assent to the redressal brought by the banking ombudsman, in writing
c. In the conjecture of the banking ombudsman, the bank has complied with the rules and regulations of banking law and the complainant has been acquainted with this effect through suitable means and if there was any disagreement from the complainant which was not accepted by the banking ombudsman within the stipulated time.
6) Award by the Banking Ombudsman-
If the parties have not been brought into settlement by agreement after one month from the date of receipt of the complaint has been over, the banking ombudsman may allow the parties an impartial opportunity to demonstrate their cases, after which the banking ombudsman may declare an award or dismiss the complaint. The award shall contain the intention of declaring it. The complainant and the bank will be sent copies of the complaint.
However, the award shall become void unless the complainant, within 30 days from the day of accepting the copy of the award, provided the concerned bank receives a letter of acceptance of the award.
7) Denial of the Complaint-
The banking ombudsman may refuse the grievance at any time during the pendency of the complaint before it if he thinks that the grievance put forward is :
a. “not on the grounds of complaint referred to in clause 8”[17], or
b. Inconsistent with clause 9(3)
c. Not within the ambit of the monetary jurisdiction of the banking ombudsman
d. Needing examination of “detailed documentary and oral evidence and the proceedings before the banking ombudsman is inappropriate for determination” or,
e. Without any reasonable cause or,
f. The complainant has made the complaint without any alertness
g. The banking ombudsman believes that the complainant has not suffered any loss or trouble.
8) Appeal Before the Appellate Authority-
The parties to the complaint who are dissatisfied with the award or whose complaint was been rejected may appeal to the Appellate Authority within 30 days of the communication of that award or rejection of the complaint.
In case the party appealing is the Bank then 30 days will begin from the date on which it receives the letter of acceptance from the complainant. If the appellant authority has adequate reasons to believe in the delay of the complainant to file an appeal beyond the stipulated time, then he may extend 30 days. After providing the parties, a reasonable opportunity to hear their cases, the concerned authority, may -
a. Repudiate the appeal
b. Abrogate the award by admitting the appeal
c. “remand the matter to the banking ombudsman for fresh disposal following such directions as the appellate authority may consider necessary or proper”[18]
d. To set forth the award by altering it and authorizing such directions.
9) Banks to Showcase the Characteristics of The Scheme for Easy Assistance of Masses-
The banks that are encompassed by the banking ombudsman scheme must make sure that all the necessary information and contact details regarding the banking ombudsman are affixed in a conspicuous place of the bank or its branches so that people visiting the bank can look at it and have enough information regarding it. Banks embodied under the scheme shall ensure that an archetype of the scheme is accessible to the authorized personnel of the bank for examination in the bank if any person wants so and information about the accessibility of the scheme with the authorized officer will be advertised in addition to the notice and shall put the archetype of the scheme in their websites.
“The banks covered by the Scheme shall appoint Nodal Officers at their Regional/Zonal Offices and inform the respective Office of the Banking Ombudsman under whose jurisdiction the Regional/Zonal Office falls. The National Officer so appointed shall be responsible for representing the bank and furnishing information to the Banking Ombudsman in respect of complaints filed against the bank. Wherever more than one zone/region of a bank falls within the jurisdiction of a Banking Ombudsman, one of the Nodal Officers shall be designated as the 'Principal Nodal Officer' for such zones or registered office”.[19]
Removal of Difficulties-
In case of the event of any difficulty arising in carrying out the scheme, the reserve bank may frame any other provisions to give effect to the scheme, which are consistent with the regulations of the Banking Regulation Act 1949.
Thus, the determination of those grievances that were pending before the Banking Ombudsman Scheme 2006 came into force will persist to be administered by the retrospective scheme.
Conclusion and Suggestion
In every part of the world, banks which are regarded as the establishment of financial prominence, the determination of the grievance regarding their activities or conduct is also an important feature of consumer contentment. As such, the ombudsman or the authority looking after consumer grievances concerning banking services has been appointed by many countries. The scheme of the ombudsman by far has been a blessing and a very significant medium for the conciliation of grievances of the masses against the services of the banks. The scheme has been designed in such a way that it does not relegate the jurisdiction of other courts and thus the discontented customers do not stumble on utilizing the banking ombudsman as a basic mechanism for addressing the conflicts concerning the banks. The symbol of the banking ombudsman is the arrangement to do fairness to an aggrieved without restricting itself to precedents and also can do away with the technicalities and basics of evidence during the redressal procedure.
The new scheme of 2006 has been much more comprehensive than the earlier schemes of 1995 and 2002. The recent scheme gives a provision through which an aggrieved customer can file his complaint online. Conjoining to that, the scheme also provides for the establishment of an “appellate authority”, through which the complainant or the bank not satisfied with the awards passed by the banking ombudsman can further appeal for it. Moreover, in the case of powers of the banking ombudsman, they too have been expanded, by adding the powers to arbitrate between banks and customers. Hence, he can look after conflicts related to regional rural banks, commercial banks, and scheduled cooperative banks.
From the thorough analysis, it can be derived that there exists still some deficiency in customers' knowledge regarding the advantages of the banking ombudsman. As such it is the need of the hour to disperse awareness between the masses so that they can prevent unwanted risks regarding bank transactions. Recently offices have taken the initiative to outreach activities to spread enlightenment among the masses through teaming up with banks, holding mass-sensitization programs taking part in exhibitions replying to the doubts of customers in newspapers, publishing ads on AIR, and Doordarshan. Since the rate of cases approaching the banking ombudsman is increasing massively, the banking ombudsman needs to look after them competently and expeditiously to ensure consumer gratification. Moreover, the grounds based on which a customer can move to the banking ombudsman are only 27, so there lies an urgent requirement to widen the ambit.
[1] Sambit, Ombudsman: Origin, Nature, Power and Functions |Public Administration ( 14 Jan, 2018) available at: <https://www.yourarticlelibrary.com/public-administration/ombudsman/ombudsman-origin-nature-power-and-functions-public-administration/63448> accessed on 14 Apr, 2019.
[2] Ibid.
[3] Ibid.
[4] AIR 2007 S.C 1469.
[5] Dr. Anjani Kant, Lectures on Banking Law, (7th Edition, Central Law Publishing 2016) 98.
[6] Moumita Mallick, Banking Ombudsman Scheme (7 Jul, 2017) available at: <http://www.legalservicesindia.com/article/2319/Banking-Ombudsman-Scheme-2006.html> accessed on 17 Jan, 2019.
[7] Ibid.
[8] Shubham Narvare. Banking Ombudsman (15 June, 2018), available at: <https://www.lawyerspotters.com /news/48/Banking-Ombudsman/> accessed on 25 Jan, 2019.
[9] Sakshi Sethi, Banking Ombudsman Scheme,(21 Feb, 2020) available at: <http://lawtimesjournal.in/banking-ombudsman-scheme/> accessed on 24th July 2020.
[10] Ibid.
[11]Pragya Mishra, A Brief Analysis of the Banking Ombudsman Scheme in India,(11 Nov,2018) available at: <http://www.manupatrafast.com> accessed on 12 Oct 2018.
[12] Ibid.
[13] The Banking Ombudsman Scheme 2006.
[14] The Banking Ombudsman Scheme 2006.
[15] Ibid.
[16] The Banking Ombudsman Scheme, 2006.
[17] Ibid.
[18] Pronoy Kumar Ghose, A brief dissection of Banking Ombudsman Scheme, (3 Oct, 2018) available at: <https://www.lawyersclubindia.com/articles/a-brief-dissection-banking-ombudsmen-scheme-5493.asp> accessed on 18 Apr 2019.
[19] Ibid.
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