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Indian Banking In the New Millenium
Banking Ombudsman Scheme 2002

Commercial Banks are service-providing institutions. They have a network of branches established at different centres catering to lakhs of customers. What if there are deficiencies in the service provided to a customer? The aggrieved customers can of-course prefer a complaint to the Zonal or Head Office of the Bank with a view to get his grievance redressed. In fact routine complaints are settled by this course. But when direct remedies fail, what is the recourse open to the customer? Is he to approach a court of law? Of-course, but it is costly and time-consuming. Can he write to RBI? He can but what RBI will do is that to forward his complaint to the Chairman of the Bank for suitable action. If he complains to the Finance Ministry, his complaint will again may reach the Chairman of the Bank routed through the Reserve Bank of India.

Sensing the need for a easy, expeditious and inexpensive mechanism for redressal of unresolved grievances of customers, the RBI initially formulated the Scheme of Ombudsman, 1995, which became operational in June 1995, providing an institutional and legal framework to bank customers to resolve all their complaint The scheme is applicable to all scheduled commercial banks having business in India and scheduled primary co-operative banks except Regional Rural Banks. Fifteen offices of Banking Ombudsman at important centres were set up to cover the entire country.

Any person whose grievance against a Bank is not resolved to his satisfaction by the Bank within a period of two months, he can approach the Banking Ombudsman if his complaint pertains to any of the matters specified in the scheme. Banking Ombudsmen have been authorised to look into the complaints concerning

1. Deficiency in banking service

Sanction of loans and advances in so far as they relate to non-observance of the Reserve Bank directives on interest rates, delays in sanction or non-observance of prescribed time schedule for disposal of loan application or non observance of any other directions or instructions of the Reserve Bank, etc. and

2. Other matters as may be specified by the Reserve Bank.

Ombudsman would make recommendations after listening to both parties. In case the recommendation made by the Banking Ombudsman is not accepted by either of the parties, Banking Ombudsman proceeds to make an award.

The procedure for the redressal of grievances under the Banking Ombudsman Scheme is profiled as under:

1. Written complaint is to be lodged by a person or an authorised representative

2. Complaint shall include signature of the complainant or an authorised representative along with the name, address and also name and address of the bank office/branch along with supportive documents, the nature and extent of the loss incurred and the relief sought from the Banking Ombudsman and a statement about the compliance of the conditions referred to in Sub-clause (3) of this clause.

3. No complaint to the Banking Ombudsman shall lie unless:

   1. Written representation was made to the bank and either the bank had rejected the complaint or no reply was received from the bank within 60 days of receipt of complaint or in case of unsatisfactory reply received from the bank

   2. The complaint is made one year after the rejection of the representation by the bank or dispatch of final reply by the bank on the representation

   3. The complainant is not in receipt of the same subject matter if settled by the Banking Ombudsman in previous proceeding/s whether received from the same complainant or any one or more of the parties concerned with the subject matter.

   4. The complaint is not the same subject matter, for which any proceedings before any court, tribunal or arbitrator or any other forum is pending or a decree or Award or order of dismissal has already been passed by any such court, tribunal, arbitrator or forum.

   5. The complaint if not frivolous or vexatious in nature.

The experience gained from the functioning of the scheme for the last seven years, the RBI during June last year modified and broad-based the Scheme making it more comprehensive and effective with wider coverage and enlarged authority/functions to the Ombudsman. The new scheme came into effect June 14, 2002.

1. The new Banking Ombudsman Scheme, 2002 covers all the regional rural banks in addition to all commercial banks and scheduled primary co-operative banks.

2. The Banking Ombudsman Scheme, 2002 additionally provides for the institution of a "Reviewing Authority" to review the Ombudsman's Award. A bank against whom an Award has been passed, may with the approval of the chief executive, file an application to the Deputy Governor-in-charge of Rural Planning and Credit Department (RPCD) of the Reserve Bank of India to seek a review of the Award. The bank can request for such a review only when the Award appears to the patently in conflict with the bank's instructions and/or the law and practice relating to banking.

3. The scheme has been revised to enable the Banking Ombudsman to function as an Arbitrator on references to him of disputes either between banks and their customers or between two banks. The value of the subject matter of individual disputes under arbitration will not exceed Rs.10 lakhs.

The adjudication of pending complaints and execution of the awards already passed before coming into being of the Banking Ombudsman Scheme, 2002 will continue to be governed by the provisions of the Banking Ombudsman Scheme, 1995.

The Scheme is introduced with the object of :

1. enabling resolution of complaints relating to provision of banking services and to facilitate the satisfaction or settlement of such complaints; and

2. resolving disputes between a bank and its constituent as well as between one bank and another bank through the process of conciliation, mediation and arbitration.

The Banking Ombudsman shall be a person of repute and having experience in the legal, banking, financial services, public administration or management sectors and if such person is a civil servant he should be in the rank of Joint Secretary or above in the Government of India and in case of such person being from banking sector, he should have had the experience of working as a whole time director in a public sector or equivalent position. He must be a minimum of 55 years of age and initially appointed for a term of three years, which can be extended for further periods of two years each until he reaches the age of 65. Selection for the appointment of Ombudsman is made by a selection committee consisting of three Dy.Governors of RBI and the Additional Secretary (Financial Sector), Department of Economic Affairs.

Each Ombudsman so appointed will have distinct territorial jurisdiction, specified by the RBI and will have an office with a Secretariat at the place( normally Cities where RBI Branch functions). (Clause -9)

The Banking Ombudsman shall have the following powers and duties

1. to receive complaints relating to provision of banking services;

2. to consider such complaints and facilitate their satisfaction or settlement by agreement, through conciliation and mediation between the bank and the aggrieved parties or by passing an Award in accordance with the Scheme;

3. to resolve by way of arbitration such disputes between banks or between a bank and its constituents as may be agreed upon by the contesting parties in accordance with the provisions of the Scheme and the Arbitration and Conciliation Act,1996.

1. The Banking Ombudsman shall exercise general powers of superintendence and control over his Office and shall be responsible for the conduct of business thereat.

2. The Banking Ombudsman shall have the power to incur expenditure on behalf of the Office. In order to exercise such power, the Banking Ombudsman will draw up an annual budget for his Office in consultation with Reserve Bank and shall exercise the powers of expenditure within the approved budget. The Reserve Bank will indicate the share of expenditure to be borne by the concerned banks.

3. The Banking Ombudsman shall send to the Governor, Reserve Bank, by 31st May every year, a report containing a general review of the activities of his Office during the preceding financial year and shall furnish such other information as the Reserve Bank may direct.

4. The Reserve Bank may, if it considers necessary in the public interest so to do, publish the report and the information received from the Banking Ombudsman in such consolidated form or otherwise as it deems fit.

1. A complaint on any one of the following grounds alleging deficiency in banking service may be filed with the Banking Ombudsman having the jurisdiction:

   1. non-payment/inordinate delay in the payment or collection of cheques, drafts, bills etc.;

   2. non-acceptance, without sufficient cause, of small denomination notes tendered for any purpose, and for charging of commission in respect thereof;

   3. non-issue of drafts to customers and others;

   4. non-adherence to prescribed working hours by branches;

   5. failure to honour guarantee/letter of credit commitments by banks;

   6. claims in respect of unauthorised or fraudulent withdrawals from deposit accounts, or fraudulent encashment of a cheque or a bank draft etc.,

   7. complaints pertaining to the operations in any savings, current or any other account maintained with a bank, such as 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.

   8. complaints from exporters in India such as delays in receipt of export proceeds, handling of export bills, collection of bills etc., provided the said complaints pertain to the bank's operations in India;

   9. complaints from Non-Resident Indians having accounts in India in relation to their remittances from abroad, deposits and other bank-related matters.

   10. Complaints pertaining to refusal to open deposit accounts without any valid reason for refusal and

   11. Any other matter relating to the violation of the directives issued by the Reserve Bank in relation to banking service.

2. The Banking Ombudsman is also vested with the jurisdiction to deal with Complaints concerning loans and advances in so far as they relate to the following:

   1. non-observance of Reserve Bank Directives on interest rates;

   2. delays in sanction, disbursement or non-observance of prescribed time schedule for disposal of loan applications;

   3. non-acceptance of application for loans without furnishing valid reasons to the applicant; and

   4. non-observance of any other directions or instructions of the Reserve Bank, as may be specified by the Reserve Bank for this purpose, from time to time.

3. The Banking Ombudsman may also deal with any such other matter as may be specified by the Reserve Bank from time to time in this behalf.

1. Any person who has a grievance against a bank relating to the banking services as enumerated under Clause 12 of the Scheme, may himself or through his authorised representative make a complaint to the Banking Ombudsman within whose jurisdiction the branch or office of the bank complained against is located.

2. The complaint shall be in writing duly signed by the complainant or his authorised representative (other than an advocate) in a form specified in Annexure-A of the Scheme and shall state clearly the name and address of the complainant, the name and address of the branch or office of the bank against which the complaint is made, the facts giving rise to the complaint supported by documents, if any, that are desired to be relied upon by the complainant, the nature and extent of the loss caused to the complainant, the relief sought from the Banking Ombudsman and a declaration about the compliance of the conditions referred to in sub-clause (3) of this clause.

3. No complaint to the Banking Ombudsman shall lie unless:-

   1. the complainant had before making a complaint to the Banking Ombudsman made a written representation to the bank named in the complaint and either the bank had rejected the complaint or the complainant had not received any reply within a period of one month after the bank concerned received his representation or the complainant is not satisfied with the reply given to him by the bank;

   2. the complaint is made not later than one year after the cause of action has arisen as per sub-clause (a) above;

   3. the complaint is not in respect of the same subject matter which was settled through the Office of the Banking Ombudsman in any previous proceedings whether or not received from the same complainant or along with any one or more complainants or any one or more of the parties concerned with the subject matter;

   4. the complaint does not pertain to the same subject matter, for which any proceedings before any court, tribunal or arbitrator or any other forum is pending or a decree or Award or a final order has already been passed by any such competent court, tribunal, arbitrator or forum; and

   5. the complaint is not frivolous or vexatious in nature

4. Notwithstanding the provisions of sub-clause (d) above it would be open to the Banking Ombudsman to entertain a complaint falling under the Scheme provided the Banking Ombudsman is satisfied with the documentary evidence produced before him by the complainant that;

   1. the interests of the complainant has suffered adversely on account of lapse or inaction on the part of the bank or due to connivance on the part of any employee of the bank facilitating the unauthorised or fraudulent withdrawal from the bank account of the complainant; or encashment, as the case may be;

   2. no interim injunction or stay order or any other direction, either restraining, the bank from making payment of the amount of claim as made by the complainant or the complainant from agitating his claim simultaneously, before any other forum, has been passed by any court, tribunal or arbitrator or any other such forum before whom the claim of the complainant is pending adjudication and

   3. in the opinion of the Banking Ombudsman the disposal of such pending proceeding is likely to take longer time.