The operation of banking provides opportunity for investors and redirects the resources available for the enhancement and sustenance of trade, commerce and industry.A well organised banking system is essential for the growth of the nation’s economy. However,this significant institution is surrounded by disputes which not only restricts its regular functioning but also leaves its customers unsatisfied. In the case of P.N. Prasad v. UOI. 1999 it was said that, ‘the bank is liable for deficiency in service for inordinate delays in providing banking services and the customer of the bank is entitled to seek compensation for the loss and the injury suffered.’
Thus, in order to redress the grievances of customers on a few types of banking services offered by banks The Banking Ombudsman Scheme was implemented by the Central Bank to facilitate the settlement of such issues. The scheme was introduced under the Banking Regulation Act of 1949 by RBI in the year 1995 which was later legally refined through the introduction of new features under Banking Ombudsman Scheme 2006. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are included in the Scheme.
A Banking Ombudsman is a person officially appointed by Reserve Bank of India to provide redressal to the complaints of the customersagainst certain deficiency in banking services. The Central Bank can appoint one or more of its officers for a period of three years who shall hold the position of General Manager to execute the functions of banking ombudsman. The Banking Ombudsman is a quasi-judicial authorityprovided with the area of jurisdiction which he has to supervise.He has the authority to summon both the parties i.e. the bank and the aggrieved customer, to carry out resolution of complaint via mediation.
Salient Features of The Banking Ombudsman Scheme
The Banking Ombudsman Scheme was initiated by RBI andhas authority under Section 35A of the Banking Regulation Act, 1949 with effect from 1995
RBI is the sole regulating authority of the scheme on the circumspection of whom the act depends on.
The scheme covers all Scheduled Commercial Banks, Regional Rural Banks and Primary Co- operative banks. Non-scheduled banks which are not listed in the Second Schedule of the Reserve Bank of India Act, are not includedwithin the scope of the Banking Ombudsman Scheme.
Ombudsman Scheme for Non-Banking Financial Companies was introduced in 2018 for the redressal of complaints against NBFCs for inefficiency in certain services covered under the grounds of complaint mentioned under the scheme.
Banks included in the scheme are responsible to present the relevant details related to the regulations of the scheme in all the offices and branches.
The grounds for complaints specified under the scheme are:
Non-payment or delay in payment– The bank is responsibleif it does not pay or makes unnecessarily delays payment of any i.e.Cheques; drafts; bills; etc.
Non acceptance– The customers can register a report if the bank does not accept notes of small denomination; or if it refuses to accept coins etc.
Delay or failure – The bank is also answerable in the case it delays the issue or fails to deliver drafts; banker cheques; or other banking facility.
Non- adherence- The customers are also eligible to file complaints if the bank does not pay attention to any of the following concerns i.e.the prescribed working hours of banks employees; guidelines given by RBI for the use of ATM, Debit credit card or e-banking
Refusal to accept taxes–The bank is held liable if it does not accept or delays allowing payment of taxes; or turns down or delays to close account
Non observance- the banks are held if they do not follow the guidelines issued by RBI in relation to recovery agentsor interest rates or the bank the time scheduled for processing disposal of loan application.
Reliefs offered to the Claimant
The scheme has been launched with the sole purpose of providing redressal to the complainant has defined regulations for reducing the grievances of bank customers:
Orders to summon for information– The act states that the Ombudsman has the power to direct the concerned Bank to present relevant information through certified copies or required documents. The confidentiality of such filesshall be maintained by the Ombudsman except that the information can be furnished to the claimant.
Settlement through anagreement– The problem can be solved by mutual settlement between the parties concernedvia conciliation or mediation. The proceedings of settlementare to beset by the Banking Ombudsman.
Compensation– the Scheme provides the authority to ombudsman to allow compensation to the victim up to Rs 20 lakh.
Award and appeal- There may arise a situation of an impasse in which case Ombudsman shall hear the issue from both the sides andpass an Award most suitable or dismiss the complaint on unsatisfactory grounds. If either party is unhappy by the orders of Ombudsman, they can file an appeal before the appellate authority within 30 days of the communication of award.
Appraisal of the Banking Ombudsman Scheme
Achievements of the shift from the banking ombudsman scheme of 1995 to banking ombudsman scheme of 2006
The practicethroughout the years has been expansion of scope and jurisdiction of the Banking ombudsman to previously unreached areas. This has been done in the following ways:
Widened areas of coverage of banks:Earlier under the 1995 scheme, only commercial banks and Scheduled Primary Co-operative Banks having its operations in India, were included. Then in 2002 the Scheme widenedits scope of the ombudsman by including entities as Regional Rural Banks, State Bank of India, and ‘subsidiary bank’ within the definition of ‘bank’ with respect to the Banking Regulation Act, 1949. Now the Scheduled Commercial banks come under the ambit of latest scheme of 2006.
QuickRedressal of Complaints: The Ombudsman Scheme mentions the grounds on which complaints can be registered by the Ombudsman. The trend in past years haveextended only to the jurisdiction of ombudsman. The RBI has nowwidened the scope of the banking ombudsman to take the complaints of the customer relating to credit cards, inefficiency on the part of sales agents of banks to provide promised services, imposing service charges without previous notice to the clients and non-observanceof the guidelines of RBI with respect to the fair practices of the code.
More Recruitment and Funding: To make the scheme more effectual, RBI has decided to take the responsibility of recruiting and funding the scheme. It has alsoprovided an online platformto complainants to file their problems appeal to it against the decisionawarded by the banking ombudsman.
General success of the scheme
Less complex procedure: The scheme provides free of cost redressal of ensuring speedy dealing without any complexity in the procedure. It provides an easyjudicial mechanism without involvement of actual courts, thus saving the time and energy of the customers.
No government interference: The scheme operates directly between customers and banks under the supervision of RBIwithout the interferenceby Governmental authorities, thus preventing unnecessarily delays.
Quick disposal of complaints: There has been increase in speed of disposal of problems and issues filed. More than 36,000 complaints have been dealt by the authorities under this Scheme. The alternative dispute resolution approach also taken by the RBI has brought huge success for the Banking sector.
Widened scope: The scope has been broadened by the Reserve Bank of India to coverinadequacies arising out of sale of various services like insurance, mutual funds etc.
Lacunae in the Banking Ombudsman Scheme
Cannot solve complex issues: It is not helpful in providing a quick resolutionfor complex problems that customer can be subjected to.
Misuse of power by Ombudsman: The Scheme gives enormous amount of power to the Ombudsman who may misuse it and act arbitrarily without being accountable for it.
possibility of exploitation of complainants:Complainants have no control over the investigation of the matter and it may happen that Ombudsman may give a false or misleading report or may even refuse to deal with a specific issue.
Unaware customers: The customers lack awareness about the scheme which may devoid people of attaining rightful redressal.
Justice is not guaranteed: The Award of the complaint registered is is not binding and in case the bank decides not to comply with the same then the person has to reach out to the civil court which leads to hassle filled justice approach.
Banking ombudsman scheme which is in operation since 1995 was introduced by RBIin terms of its powers conferred on the Bank by Section 35A of the Banking Regulation Act, 1949 and has been revised during the year 2002 and 2006. The scheme has been recognised asone of the most effective and constructive tools for the customers of the banking facilities when they face inefficiency in the services that they are availing.The Scheme been successful in establishing a system of expeditious and inexpensive resolution of customer complaints. Although the Scheme has been remarkable in deliveringquick redressal of disputes between consumers, it is still expected to achieve lot more.