RBI to give more powers to Internal Ombudsman of Banks to resolve Customer Complaints Quickly

RBI Governor Sanjay Malhotra on Wednesday announced new steps to strengthen consumer protection. The Reserve Bank of India (RBI) has decided to give more powers to the Internal Ombudsman (IO) of banks. The IOs will now have the power to award compensation and can also directly interact with complainants. This will make their role closer to that of the RBI Ombudsman.

The RBI had earlier introduced the Internal Ombudsman system in banks and some NBFCs. This mechanism allows an independent review of complaints rejected by these institutions. By giving more powers to IOs, the system is expected to work more effectively.

The RBI is also planning to introduce a two-tier grievance redress system within banks and NBFCs. This will ensure that customers’ complaints are resolved quickly and fairly before being escalated to the IO. A draft of the new Master Direction with these changes will soon be released for public feedback.

What is Internal Ombudsman?

If a customer’s complaint is not resolved within the given time frame, or if he or she is not satisfied with the solution provided by the bank, the customer can approach the Banking Ombudsman of RBI for resolution. For example, the complaint may move from the branch to the regional office, and from the region to the zonal office for resolution. However, if the customer is still not satisfied with the process or the outcome, he or she can approach the Banking Ombudsman (BO) or use other legal options for grievance redressal.

The Reserve Bank of India has advised all public sector banks, and select private and foreign banks, to appoint an Internal Ombudsman (IO) as an independent authority to review complaints that were partially or fully rejected by the banks.

What is RBI Ombudsman?

If the customers are not satisfied with response of Bank, then they can file complaint with RBI Ombudsman. An RBI Ombudsman is a senior official of RBI appointed by RBI to redress the complaints from customers of the REs against “deficiency in service”

The RBI Integrated Ombudsman Scheme (RB-IOS), launched in November 2021, provides customers with a fast and cost-effective way to get their grievances resolved. Currently, the scheme covers commercial banks, regional rural banks, urban co-operative banks, some NBFCs, credit information companies, and others.

Reserve Bank of India (RBI) integrated its three erstwhile Ombudsman Schemes viz. (i) the Banking Ombudsman Scheme, 2006, (ii) the Ombudsman Scheme for Non-Banking Financial Companies, 2018, and (iii) the Ombudsman Scheme for Digital Transactions, 2019, into one Scheme – ‘The Reserve Bank – Integrated Ombudsman Scheme, 2021 (the Scheme / RB-IOS, 2021)’ with effect from November 12, 2021. The Scheme simplifies the grievance redress process at RBI by enabling the customers of Regulated Entities (REs) like banks, Non-Banking Financial Companies (NBFCs), Payment System Participants (PSPs) and Credit Information Companies to register their complaints at one centralised reference point. The objective of the Scheme is to resolve the customer grievances involving ‘deficiency in service’ on part of REs in a speedy, cost-effective and satisfactory manner.

To make the system more inclusive, the RBI has also decided to bring State Co-operative Banks and District Central Co-operative Banks under its Ombudsman Scheme. Until now, these were under NABARD. A notification on this will be issued shortly.

The RBI has also reviewed the scheme based on feedback, operational experience, and global practices. The review aims to make the process simpler, faster, and more transparent. A draft of the revised scheme will soon be available on the RBI website for public comments.