ombudsman services in banking industry1

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OMBUDSMAN SERVICES IN BANKING INDUSTRY AN OVERVIEW

CHAPTER I

INTRODUCTION

1.1) BANKING AND ITS OVERVIEW1


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Banks are the businesses that deal in money. Bank customers can deposit their

money in bank accounts. Customers can also borrow money from banks. This

borrowed money is called a bank loan. When customers use the services of a bank,

they are doing their banking. Banks provide these services for many different

customers, including children, adults, and business.

Banks use the money that customers deposit in bank accounts to make more

money. They lend some of the money to other customers interest for using this

money. Banks pay some of the interest to the customers who made deposits. They

make a profit by keeping the rest.

Banks also invest some of their customers money to make more money. They

invest in other businesses, both local and overseas. Banking industry plays a major in

the Indian financial system and provides a wide range of services. It is a financial

institution dealing with deposits, advances and the other related service activities.

According to The Banking Companies Act, 1949 Banking means the

accepting for the purpose of lending or investment, of deposits of money from the

public repayable on demand or otherwise, and withdrawable by cheques, drafts, and

pay order or otherwise.

1.2) FUNCTIONS OF BANK:

1) Receiving deposits:

This is the main function of commercial banks to collect savings of individuals

and firms. They offer different types of deposits for the facility of the customers.

i) Current account or demand deposits:

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Any sum of money can be withdrawn from this type of account any time

without any prior notice or such. No interest is allowed on this type of account.

ii) Savings account:

This type of account is maintained for the purpose of liquidity instantly by the

individuals. This type of account carries low interest rate.

iii)Fixed deposit:

This type of account is different from the above two types of accounts and is

maintained for a fixed period barring high interest rate which can be withdrawn either

on maturity date or before the date of maturity as per norms of banks.

2) Advancing loans:

This is the important function of the Commercial banks. Credit is given to the

people in different ways.

There are three types of loans:

i) Short term loans:

These loans are advanced for the period of 6 months to 1 year. Higher rate of

interest is charged.

ii) Medium term loans:

Loans advanced for a period of 1 year to 5 years are called medium term loans.

iii)Long term loans:

Loans which are advanced for a period of more than 10 years are called long

term loans.

3) Bank Overdraft:

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Banks allows their trustful customers to draw more than the deposit they have

in the banks. A higher rate of interest is charged on Overdraft.

4) Cash Credit:

Banks also advances credit against immovable properties and charge interest on

credit advanced.

5) Discounting of bills:

Banks provide short-term finance by discounting bills, i.e. making payment

before the due date of the bills after deducting certain rate of discount. In case anybill is dishonored on the due date, the bank can recover the amount from the

customer.

1.3) TYPES OF BANKS

There are various types of banks which operate in our country to meet the

financial requirements of different categories of people engaged in agriculture,

business, profession, etc. On the basis of functions, the banking institutions in Indiamay be divided into the following types:

TYPES OF BANKS

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CENTRAL BANK DEVELOPMENT BANKS SPECIALIZED BANKS

COMMERCIAL BANKS COOPERATIVE BANKS

PUBLIC SECTOR BANKS PRIMARY CREDIT SOCIETIES

PRIVATE SECTOR BANKS CENTRAL COOPERATIVE BANKS

FOREIGN BANKS STATE COOPERATIVE BANK

1.3.1) Central Bank

A bank which is entrusted with the functions of guiding and regulating the

banking system of a country is known as its Central bank. Such a bank does not deal

with the general public. It acts essentially as Governments banker; maintain deposit

accounts of all other banks and advances money to other banks, when needed. The

Central Bank provides guidance to other banks whenever they face any problem. It is

therefore known as the bankers bank. It advises the Government on monetary and

credit policies and decides on the interest rates for bank deposits and bank loans.

Another important function of the Central Bank is the issuance of currency notes,

regulating their circulation in the country by different methods. No other bank than the

Central Bank can issue currency.

1.3.2) Commercial Banks

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Commercial Banks are banking institutions that accept deposits and grant

short- term loans and advances to their customers. In addition to giving short-term

loans, commercial banks also give medium-term and long-term loan to business

enterprises. Commercial banks are of three types:

i) Public Sector Banks:

These are banks where majority stake is held by the Government of India or

Reserve Bank of India.

Examples of public sector banks are: State Bank of India, Corporation Bank, Bank

of Baroda and Dena Bank, etc.

ii) Private Sectors Banks:

In case of private sector banks majority of share capital of the bank is held by

private individuals. These banks are registered as companies with limited liability.

Examples of Private Sector Banks are: Jammu and Kashmir Bank Ltd., Bank of

Rajasthan Ltd., Development Credit Bank Ltd., Bharat Overseas Bank Ltd., Oriental

Bank of Commerce, Vysya Bank, Axis Bank., etc.

iii) Foreign banks:

These banks are registered and have their headquarters in a foreign country but

operate their branches in our country. Some of the foreign banks operating in our

country are Hong Kong and Shanghai Banking Corporation (HSBC), Citibank,

American Express Bank, Standard & Chartered Bank, Grindlays Bank, etc. The

number of foreign banks operating in our country has increased since the financial

sector reforms of 1991.

1.3.3) Development Banks

Business often requires medium and long-term capital for purchase of

machinery and equipment, for using latest technology, or for expansion and

modernization. Such financial assistance is provided by Development Banks. They

also undertake other development measures like Public Sector Banks comprise 19

nationalized banks and State Bank of India and its 7 associate banks. Industrial

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Finance Corporation of India (IFCI) and State Financial Corporations (SFCs) are

examples of development banks in India.

1. 3.4) Cooperative Banks

People who come together to jointly serve their common interest often form a

cooperative society under the Co-operative Societies Act. When a co-operative

society engages itself in banking business it is called a Co-operative Bank. The society

has to obtain a license from the Reserve Bank of India before starting banking

business. Any co-operative bank as a society is to function under the overall

supervision of the Registrar, Co-operative Societies of the State. As regards bankingbusiness, the society must follow the guidelines set and issued by the Reserve Bank of

India. There are three types of co-operative banks operating in our country:

a) Primary Credit Societies

b) Central Cooperative Banks

c) State Cooperative Banks

1. 3.5) Speciqalized Banks

There are some banks, which cater to the requirements and provide overall

support for setting up business in specific areas of activity. EXIM Bank, SIDBI and

NABARD are examples of such banks. They engage themselves in some specific area

or activity and thus, are called specialized banks.

i) Export Import Bank of India (EXIM Bank)

If you want to set up a business for exporting products abroad or importing

products from foreign countries for sale in our country, EXIM bank can provide you

the required support and assistance. The bank grants loans to exporters and importers

and also provides information about the international market.

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ii) Small Industries Development Bank of India (SIDBI)

If you want to establish a small-scale business unit or industry, loan on easy

terms can be available through SIDBI. It also finances modernization of small-scale

industrial units, use of new technology and market activities. The aim and focus of

SIDBI is to promote, finance and develop small-scale industries.

iii) National Bank for Agriculture and Rural Development (NABARD)

It is a central institution for financing agricultural and rural sectors. If a person

is engaged in agriculture or other activities like handloom weaving, fishing, etc.

NABARD can provide credit, both short-term and long-term, through regional rural

banks. It provides financial assistance, especially, to co-operative credit, in the field of

agriculture, small scale industries, cottages and village industries in rural areas.

1.4) OBJECTIVES OF THE STUDY

1. To ascertain the services of the Banking Ombudsman offered to the

customer(s).

2. To find out Banking Ombudsman Scheme & its functioning mechanism.

3.To show how the Ombudsman machinery helps in resolving customer(s)complaints.

4. To analyze the changes in Banking Ombudsman Scheme enactments and their

benefits in redressing customer(s) grievances.

5. To explain the duties, functions & powers of the Ombudsman in Banking

Sector.

6. To examine the role of law in the protection of the consumer of financial

services.

1.5) SCOPE OF STUDY

The present study covers the aspect of bankig services in India with special

reference to Ombudsman mechanism. It also deals precicsly the orign of banking in

India. The failure of the Banking Ombudsman can be known after the detailed and

careful examination of the aspects related on the performance as mentioned above.The

policies and procedures of Banking Ombudsman are governed by Reserve Bank of

India. It is regarding the registering of complaints from the prospective customers and

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providing a solution according to the purview of the board without any favoritism

neither to the bank nor the customer. The performance of the Banking Ombudsman

can be analyzed on the aspects such as:

i) The quantum of complaints handled by them,

ii) The timeliness in handling the issues, and

(iii) Appropriateness of the decisions of the Banking Ombudsman.

1.6) METHODOLOGY OF STUDY

The data is collected from books, magazines and websites concerning to

Banking Services, Banking Ombudsman and its services.

1.7) PERIOD OF STUDY

The period of study taken from 2007 to 2010.

1.8) DURATION OF STUDY

The duration of study is for 2 months.

1.9) IMPORTANCE OF THE STUDY

1. It explains the role of RBI acting as grievance redressal agency in banking

sector.

2. It shows the awareness of customer(s) in getting their problems and difficulties

redressed by the concerned banks.

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3. It shows upto what extent the policies and procedures of Banking Ombudsman

Scheme are reaching to the outright customer(s).

4. It explains how all the banks in the country are bound to abide by the policies

and procedures framed by RBI.

5. It explains the functioning of all types of banks in accordance to the rules and

regulations of Central Bank Of India.

6. It aids to know whether the services of bank(s) are satisfying the targeted

customer(s) or not.

1.10) LIMITATION OF STUDY

1. The period of study is limited.

2. It requires lot of analysis on the overall subject matter.

3. The data collected cannot be generalized as it is only secondary data.

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CHAPTER II

MODERN TRENDS IN

BANKING INDUSTRY

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2.1) INTRODUCTION

In India, the banks are being segregated in different groups. Each group has its

own benefits and limitations in operating in India and its own dedicated target market.

Only few of them work in the rural and urban sectors. Some of these banks are of

Indian origin and some are foreign players.

With years, banks are also adding services to their customers. The Indian

banking industry is passing through a phase of customers market. The customers have

more choices in choosing their banks. A competition has been established within thebanks operating in India. With stiff competition and advancement of technology, the

services provided by banks have become more easy and convenient. The past days are

witness to an hour wait before withdrawing cash from accounts or a cheque from the

north of the country being cleared in one month in the south.

Today, we are having a fairly well developed banking system with different

classes of banks public sector banks, foreign banks, private sector banks both old

and new generation, regional rural banks and co-operative banks with the Reserve

Bank of India as the fountain Head of the system.

In the banking field, there has been an unprecedented growth and

diversification of banking industry has been so stupendous that it has no parallel in the

annals of banking anywhere in the world.

2.2) INFORMATION TECHNOLOGY IN BANKING

India Vision-2020 is the Vision envisaged by the former Honble Presidentof India, Dr A.P.J. Abdul Kalam touching upon very sensitive issues requiring urgent

attention for implementation by banking and finance community, in an effective andefficient way. Banks have to be proactive to support the innovative products for

enabling wealth generation by young entrepreneurs by setting aside the conventional

tangible asset syndrome. The dynamics of banking in relation to national

development vis--vis role of banks are briefly discussed hereunder.

Indian banking industry, today is in the midst of an IT revolution. A

combination of regulatory and competitive reasons has led to increasing importance of

total banking automation in the Indian Banking Industry. Information Technology has

basically been used under two different avenues in Banking. The bank which used the

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right technology to supply timely information will see productivity increase and

thereby gain a competitive edge.

Following are the innovative services offered by the industry in the recent

past:

2.2.1) Electronic Payment Services E Cheques

Nowadays we are hearing about e-governance, e-mail, e-commerce, e-tail etc.

In the same manner, a new technology is being developed in US for introduction of e-

cheque, which will eventually replace the conventional paper cheque. India, as

harbinger to the introduction of e-cheque, the Negotiable Instruments Act has already

been amended to include; Truncated cheque and E-cheque instruments.

2. 2.2) Real Time Gross Settlement (RTGS)

Real Time Gross Settlement system, introduced in India since March 2004, is a

system through which electronics instructions can be given by banks to transfer funds

from their account to the account of another bank. The RTGS system is maintained

and operated by the RBI and provides a means of efficient and faster funds transfer

among banks facilitating their financial operations. As the name suggests, funds

transfer between banks takes place on a Real Time' basis. Therefore, money can

reach the beneficiary instantaneously and the beneficiary's bank has the responsibility

to credit the beneficiary's account within two hours.

2. 2.3) Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) is a system whereby anyone who wants to

make payment to another person/company etc. can approach his bank and make cash

payment or give instructions/authorization to transfer funds directly from his own

account to the bank account of the receiver/beneficiary. Complete details such as the

receiver's name, bank account number, account type (savings or current account),

bank name, city, branch name etc. should be furnished to the bank at the time of

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requesting for such transfers so that the amount reaches the beneficiaries' account

correctly and faster. RBI is the service provider of EFT.

2. 2.4) Electronic Clearing Service (ECS)

Electronic Clearing Service is a retail payment system that can be used to

make bulk payments/receipts of a similar nature especially where each individual

payment is of a repetitive nature and of relatively smaller amount. This facility is

meant for companies and government departments to make/receive large volumes of

payments rather than for funds transfers by individuals.

2. 2.5) Automatic Teller Machine (ATM)

Automatic Teller Machine is the most popular devise in India, which enables

the customers to withdraw their money 24 hours a day 7 days a week. It is a devise

that allows customer who has an ATM card to perform routine banking transactions

without interacting with a human teller. In addition to cash withdrawal, ATMs can be

used for payment of utility bills, funds transfer between accounts, deposit of chequesand cash into accounts, balance enquiry etc.

2. 2.6) Point of Sale Terminal

Point of Sale Terminal is a computer terminal that is linked online to the

computerized customer information files in a bank and magnetically encoded plastic

transaction card that identifies the customer to the computer. During a transaction, the

customer's account is debited and the retailer's account is credited by the computer for

the amount of purchase.

2. 2.7) Tele Banking

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Tele Banking facilitates the customer to do entire non-cash related banking on

telephone. Under this devise Automatic Voice Recorder is used for simpler queries

and transactions. For complicated queries and transactions, manned phone terminals

are used.

2. 2.8) Electronic Data Interchange (EDI)

Electronic Data Interchange is the electronic exchange of business documents

like purchase order, invoices, shipping notices, receiving advices etc. in a standard,

computer processed, universally accepted format between trading partners. EDI can

also be used to transmit financial information and payments in electronic form.

2.3) IMPLICATIONOF INFORMATION TECHNOLOGY IN

BANKING

The banks were quickly responded to the changes in the industry; especially the

new generation banks. The continuance of the trend has re-defined and re-engineered

the banking operations as whole with more customization through leveraging

technology. As technology makes banking convenient, customers can access banking

services and do banking transactions any time and from any ware. The importance of

physical branches is going down.

2.4) CHALLENGES FACED BY BANKS, vis--vis, IT

IMPLEMENTATION

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It is becoming increasingly imperative for banks to assess and ascertain the

benefits of technology implementation. The fruits of technology will certainly taste a

lot sweeter when the returns can be measured in absolute terms but it needs

precautions and the safety nets.

It has not been a smooth sailing for banks keen to jump onto the IT bandwagon.

There have been impediments in the path like the obduracy once shown by trade

unions who felt that IT could turn out to be a threat to secure employment. Further, the

expansion of banks into remote nooks and corners of the country, where logistics

continues to be a handicap, proved to be another stumbling stock. Another challenge

the banks have had to face concerns the inability of banks to retain the trained andtalented personnel, especially those with a good knowledge of IT.

The increasing use of technology in banks has also brought up security'

concerns. To avoid any pitfalls or mishaps on this account, banks ought to have in

place a well-documented security policy including network security and internal

security. The passing of the Information Technology Act has come as a boon to the

banking sector, and banks should now ensure to abide strictly by its covenants. An

effort should also be made to cover e-business in the country's consumer laws.

Some are investing in it to drive the business growth, while others are having

no option but to invest, to stay in business. The choice of right channel, justification of

IT investment on ROI, e-governance, customer relationship management, security

concerns, technological obsolescence, mergers and acquisitions, penetration of IT in

rural areas, and outsourcing of IT operations are the major challenges and issues in the

use of IT in banking operations. The main challenge, however, remains to motivate

the customers to increasingly make use of IT while transacting with banks. For small

banks, heavy investment requirement is the compressing need in addition to theircapital requirements. The coming years will see even more investment in banking

technology, but reaping ROI will call for more strategic thinking.

In the days to come, banks are expected to play a very useful role in the

economic development and the emerging market will provide ample business

opportunities to harness. Human Resources Management is assuming to be of greater

importance. As banking in India will become more and more knowledge supported,

human capital will emerge as the finest assets of the banking system. Ultimately

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Information technology (IT) plays an important role in the banking sector as it

would not only ensure smooth passage of interrelated transactions over the electric

medium but will also facilitate complex financial product innovation and product

development. The application of IT and e-banking is becoming the order of the day

with the banking system heading towards virtual banking.

As an extreme case of e-banking World Wide Banking (WWB) on the pattern

of World Wide Web (WWW) can be visualized. That means all banks would be

interlinked and individual bank identity, as far as the customer is concerned, does not

exist. There is no need to have large number of physical bank branches, extension

counters. There is no need of person-to-person physical interaction or dealings.Customers would be able to do all their banking operations sitting in their offices or

homes and operating through internet. This would be the case of banking reaching the

customers.

Banking landscape is changing very fast. Many new players with different

muscle powers will enter the market. The Reserve Bank in its bid to move towards the

best international banking practices will further sharpen the prudential norms and

strengthen its supervisor mechanism. There will be more transparency and disclosures.

2.5) FUTURE OUTLOOK OF BANKING SYSTEM IN INDIA

Everyone today is convinced that the technology is going to hold the key to

future of banking. The achievements in the banking today would not have make

possible without IT revolution. Therefore, the key point is while changing to the

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current environment the banks has to understand properly the trigger for change and

accordingly find out the suitable departure point for the change.

Although, the adoption of technology in banks continues at a rapid pace, the

concentration is perceptibly more in the metros and urban areas. The benefit of

Information Technology is yet to percolate sufficiently to the common man living in

his rural hamlet. More and more programs and software in regional languages could

be introduced to attract more and more people from the rural segments also.

Standards based messaging systems should be increasingly deployed in order to

address cross platform transactions. The surplus manpower generated by the use of IT

should be used for marketing new schemes and banks should form a brains trust'

comprising domain experts and technology specialists.

2.6. CONCLUSION

The banking today is re-defined and re-engineered with the use of Information

Technology and it is sure that the future of banking will offer more sophisticated

services to the customers with the continuous product and process innovations. Thus,there is a paradigm shift from the seller's market to buyer's market in the industry and

finally it affected at the bankers level to change their approach from "conventional

banking to convenience banking" and "mass banking to class banking". The shift has

also increased the degree of accessibility of a common man to bank for his variety of

needs and requirements.

In any banking system, no bank -- public or private -- can survive unless it

continuously strives to transform its organization into a self-governing, self-correcting

and self-adjusting entity. For banks to grapple with these problems and manage the

future, structural and institutional rigidities need to be eased in two critical areas:

comprehensive legal support for recovery of bad debts and a fundamental change in

the pattern of governance for the PSBs.

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While public sector banks are in the process of restructuring, private sector

banks are busy consolidating through mergers and acquisitions (the sector has been

recently opened up for foreign investments). PSBs need to improve in the services

like ATMs, Credit and Debit cards. They lack behind in providing facilities like loans

and other accounts. These branches are not interlinked with each other and workinghours are less.

In case of Private sector banks customers are not aware of the facts and hidden

costs in view, as there are various products and facilities provided by the banks. The

charges that are been taken are also too high. Challenges and Opportunities exist for

both the public sector as well as the private sector banks, their nature however differs.

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The word Ombudsman (ahm bedz man), in general, means a public official

who is appointed to investigate the citizens complaints against the Administration. He

is to intervene for the ordinary citizens in his dealings with the complex machinery of

the establishment.

The Banking Ombudsman Scheme, 1995 was notified by RBI on June 14, 1995

in terms of the powers conferred on the Bank by Section 35A of the Banking

Regulation Act, 1949 to provide for a system of redressal of grievances against banks.

The Scheme sought to establish a system of expeditious and inexpensive resolution of

customer complaints. The Scheme is in operation since 1995 and has been revised

during the years 2002 and 2006. The Scheme is being executed by Banking

Ombudsmen appointed by Reserve Bank at 15 centers covering the entire country. As

mandated by the Banking Ombudsman Scheme, the Banking Ombudsmen submit an

Annual Report on the functioning of their offices every year. Based on such reports,

an Annual Report for the Banking Ombudsman Scheme in a whole is prepared at

Reserve Bank of India, Central Office. As is being the practice, the Annual Report

covers the last five-year period with focus on the current year. Further, as a result of

computerization of the functioning of Banking Ombudsman Offices through the

Complaint Tracking Software, detailed analysis was possible on the information

pertaining to year 2006-07. With the decision to merge the Banking Ombudsman

Offices with that of RBI offices, the accounting period for the Banking OmbudsmanOffices was changed from April 1-March 31 to July 1-June 30 to be in congruent with

that of RBI offices. Accordingly, the information analysed for the year 2006-07

pertains to the period July 1, 2006 to June 30, 2007.

3.2) GENERAL PARTICULARS ON THE SCHEME

The word Ombudsman in general means a grievance man, a public official

who is appointed to investigate complaints against the administration. He is to

intervene for the ordinary citizen in his dealings with the complex machinery of the

establishment. In India, any person whose grievance against a bank is not resolved to

his satisfaction by that bank within a period of one month can approach the Banking

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Ombudsman if his complaint pertains to any of the matters specified in the Scheme.

Banking Ombudsmen have been authorized to look into complaints concerning

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, delay in sanction

or non-observance of prescribed time schedule for disposal of loan applications ornonobservance of any other directions or instructions of the Reserve Bank as may be

specified for this purpose, from time to time, and such other matters as may be

specified by the Reserve Bank. The Scheme envisages expeditious and satisfactory

disposal of customer complaints in a time bound manner.

The Banking Ombudsman on receipt of any complaint endeavors to promote a

settlement of the complaint by agreement between the complainant and the bank

named in the complaint through conciliation or mediation. For the purpose of

promoting a settlement of the complaint, the Banking Ombudsman has been allowed

to follow such procedures as he may consider appropriate and he is not bound by any

legal rule of evidence. If a complaint is not settled by agreement within a period of

one month from the date of receipt of the complaint or such further period as the

Banking Ombudsman may consider necessary, he may pass an Award after affording

the parties reasonable opportunity to present their case. He shall be guided by the

evidence placed before him by the parties, the principles of banking law and practice,

directions, instructions and guidelines issued by the Reserve Bank from time to timeand such other factors, which in his opinion are necessary in the interest of justice.

3.3) SCOPE OF THE SCHEME

The Banking Ombudsman Scheme, 2002 covered all the Regional Rural Banks

in addition to all Commercial Banks and Scheduled Primary Co-operative Banks,which were already covered by earlier Banking Ombudsman Scheme, 1995. There is

no change in this regard in the Banking Ombudsman Scheme, 2006.

In 2006, the Reserve Bank of India announced the revised Banking

Ombudsman Scheme with enlarged scope that included customer complaints on

certain new areas, such as, credit card complaints, deficiencies in providing the

promised services even by banks' sales agents, levying service charges without prior

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notice to the customer and non adherence to the fair practices code as adopted by

individual banks. The important new grounds of complaints added include credit card

issues, failure in providing the promised facilities, non-adherence to fair practices

code, levying of excessive charges without prior notice and issues pertaining to

accepting payment towards taxes and issuing/servicing of Government securities. Thegrounds of complaints have been enumerated in Clause 8 of the Banking Ombudsman

Scheme, 2006.

3.4) OPERATIONALISATION

Reserve Bank of India operationalised the Banking Ombudsman Scheme byestablishing Banking Ombudsman Offices at 15 centers all over the country. The

names, addresses and area of operation of the Banking Ombudsmen have been given

in to Annexure A. Reserve Bank frames the guidelines for operationalizing the

Scheme and supervises the running of the Scheme. It also supervises the running of

the Scheme and administrative arrangements, budget and expenditure of the Banking

Ombudsman Offices.

3.5) POLICY FOR THE GRIEVANCES REDRESSAL OF THE

CUSTOMER COMPLAINTS

In the present scenario of competitive banking, excellence in customer service

is the most important tool for sustained business growth. Customer complaints are part

of the business life of any corporate entity. This is more so for banks because banks

are service organizations. As a service organization, customer service and customer

satisfaction should be the prime concern of any bank. The bank believes that

providing prompt and efficient service is essential not only to attract new customers,

but also to retain existing ones. This policy document aims at minimizing instances of

customer complaints and grievances through proper service delivery and review

mechanism and to ensure prompt redressal of customer complaints and grievances.

The review mechanism should help in identifying shortcomings in product features

and service delivery. Customer dissatisfaction would spoil banks name and image.

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The Banks policy on grievance redressal follows the under noted principles:

1) Customers are treated fairly at all times.

2) Complaints raised by customers are dealt with courtesy and on time.

3) Customers are fully informed of avenues to escalate their complaints/grievances

within the organization and their rights to alternative remedy, if they are not fully

satisfied with the response of the bank to their complaints.

4) Bank will treat all complaints efficiently and fairly as they can damage the

banks reputation and business if handled otherwise. The Bank employees must work

in good faith and without prejudice to the interests of the customer.

In order to make banks redressal mechanism more meaningful and effective, a

structured system needs to be built up towards such end. Such system would ensure

that the redressal sought is just and fair and is within the given frame-work of rules

and regulation. The policy document would be made available at all branches. All

employees of the Bank should be made aware about the Complaint handling process.

The customer complaint arises due to:

1) The attitudinal aspects in dealing with customers.

2) Inadequacy of the functions/arrangements made available to the customers or

gaps in standards of services expected and actual services rendered.

The customer is having full right to register his complaint if he is not satisfied

with the services provided by the bank. Customer can give his complaint in writing,

orally or over telephone. If customers complaint is not resolved within given time orif he is not satisfied with the solution provided by the bank, he can approach Banking

Ombudsman with his complaint or other legal avenues available for grievance

redressal.

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KIND S OF OMBUDSMAN

BANKING OMBUDSMAN

INSURANCE OMBUDSMAN

INCOME TAX OMBUDSMAN

TELECOM OMBUDSMAN

ELECTRICITY OMBUDSMAN

S.E.B.I OMBUDSMAN

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3.6) KINDS OF OMBUDSMAN

3.6.1) S.E.B.I. Ombudsman

The Securities Exchange Board of India (SEBI) under section 30 read with sub-

section (1) of section 11 of the SEBI Act, 1992, has framed the SEBI (Ombudsman)

Regulations, 2003, which were notified on 21stAugust 2003. The Regulations

provided for the establishment of the office of Ombudsman to redress the Grievance

of investors in securities and connected matters. The listed companies and registered

stock intermediaries have to disclose the name address and other particulars of

ombudsman in their for the benefit of the investors.

3.6.2) Electricity Ombudsman

The Electricity Regulatory Commission, under section 181 read with sub-section

(5) of section 42 of the Electricity Act, 2003, issues guidelines for establishment of

forum and Ombudsman for redressal of grievances of Electricity consumers. The

Delhi Regulatory Commission (DERC) vide its Notification dated 11thMarch, 2006

has issued DERC (Guidelines for establishment of Forum of redressal of grievance of

the consumer and Ombudsman) Regulations, 2003. It may be noted that the

Ombudsman is the Appellate Authority under the Electricity Act 2003, and the DERC

Regulations, 2003 and therefore an electricity consumer has to first approach the

Consumer Grievance Redressal Forum established under the DERC Regulations,

2003.

3.6.3) Tele Communication Ombudsman

The Telecom Regulatory Authority of India Act, 1997, empowers the TelecomRegulatory Authority of India Act 1997, empowers the Telecom Regulatory Authority

of India (TRAI) to make the recommendations on laying down the standards of

quality of services to be provided by the services providers and conduct the interest of

the periodical surveys of Telecom services so as to protect the interest of the

consumers. The telecoms operators frequently threaten to disconnects the phones and

with draw the numbers given t o subscribers if the deadline for payment is missed by a

day or there is miscalculation of the tiniest amount. The TRAI is, however, neither

empowered to look into the grievances of individual customers nor take action against

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the operators who do not meet quality of standards As there is no specialized body to

redress the grievance of telecom customers, they have to approach consumer forum

setup under THE Consumer Protection Act, 1986, or civil courts for Resolutions

adjudication of disputes.

3.6.4) Income-Tax Ombudsman

The government is considering creating an office of Income Tax Ombudsman to

protect individual taxpayers right. The Ombudsman will identify issues that increase

the compliance burden or create problems for taxpayers and bring those issues to the

attention of the ministry of Finance. The Ombudsman will make appropriatelegislative proposal where necessary and send periodical reports to the Department of

Revenue, suggesting appropriate action. It is proposed to initially setup offices of

Ombudsman at Delhi, Mumbai, Kolkata and Chennai.

3.6.5) Insurance Ombudsman

The Government of India, Minister of Finance, Department of Economics Affairs,

Insurance Division under section 114 (1) of Insurance Act, 1938, has framed the

Redressal of Public Grievance Rules, 1998, for appointment of Insurance

Ombudsman, which comes into force with effect from 11thNovember 1998. The

Insurance Ombudsman has started functioning from 1999, to provide for efficient,

cost effective and impartial settlement of claims and grievance of any person against a

Life or General Insurance in Public and private sector. The meaning of expression

any other person is wider than consumer and therefore, even third party having

grievance with respect to an Insurance contract can approach the Ombudsman.

3.6.6) BANKING OMBUDSMAN (BO)

The Reserve Bank of India (RBI) first introduced the Banking Ombudsman

Scheme In1995 in terms of Section 35(A) of Banking Regulation Act 1949 and it was

revised in 2002 and 2006 to provide a system of quick and inexpensive redress of

customer grievances against banks.

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Now let us discuss in detail about Banking Ombudsman and its mechanism as a

grievances redressal agency in next chapter.

3.7) BANKING OMBUDSMAN SCHEME 2006

This Scheme may be called the Banking Ombudsman Scheme, 2006and shall

extend to the whole of India to the business in India of a bank as defined under the

Scheme. The Reserve Bank, if it is satisfied that it is expedient so to do, may by order

suspend for such period as may be specified in the order, the operation of all or any of

the provisions of the Scheme, either generally or in relation to any specified bank.

The office of the Banking Ombudsman shall be located at such places as

maybe specified by the Reserve Bank. In order to expedite disposal of complaints, the

Banking Ombudsman may hold sittings at such places within his area of jurisdiction

as may be considered necessary and proper by him in respect of a complaint or

reference before him. The Reserve Bank shall depute such number of its officers or

other staff to the office of the Banking Ombudsman as is considered necessary tofunction as the secretariat of the Banking Ombudsman.

3.7.1) SHORT TITLE, COMMENCEMENT, EXTENT AND

APPLICATION

(1) This Scheme may be called the Banking Ombudsman Scheme, 2006.

(2) It shall come into force on such date as the Reserve Bank may specify.

(3) It shall extend to the whole of India.

(4) The Scheme shall apply to the business in India of a bank as defined under

the Scheme.

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(1) The Reserve Bank, if it is satisfied that it is expedient so to do, may by

order suspend for such period as may be specified in the order, the operation of

all or any of the provisions of the Scheme, either generally or in relation to any

specified bank.

(2) The Reserve Bank may, by order, extend from time to time, the period of any

suspension ordered as aforesaid by such period, as it thinks fit

3.7.3) APPOINTMENT AND TENURE OF BO

The Reserve Bank may appoint one or more of its officers in the rank of Chief

General Manager or General Manager to be known as Banking Ombudsman to carry

out the functions entrusted to them by or under the Scheme.

The appointment of Banking Ombudsman under the above Clause may be

made for a period not exceeding three years at a time.

3.7.4) POWERS AND JURISDICTION

(1) The Reserve Bank shall specify the territorial limits to which the authority

of each Banking Ombudsman appointed under Clause 4 of the Scheme shall

extend.

(2) 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 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 in accordance with the Scheme.

(3) The Banking Ombudsman shall exercise general powers of superintendence

and control over his Office and shall be responsible for the conduct of business

thereat.

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(4) The Office of the Banking Ombudsman shall draw up an annual budget for

itself in consultation with Reserve Bank and shall exercise the powers of

expenditure within the approved budget on the lines of Reserve Bank of India

Expenditure Rules, 2005.

(5) The Banking Ombudsman shall send to the Governor, Reserve Bank, a

report, as on 30th June every year, 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 and 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.

3.7.5) DUTIES AND FUNCTIONS OF BO

1) The Ombudsman shall enquire into and investigate in accordance with the

Provisions of the Act, and take action or steps as may be prescribed by the

Act and concerning:

a) Practices and actions by persons, enterprises and other private

institutions where complaints allege that violations of fundamental rights

and freedoms have taken place.

b) All instances or matters of alleged or suspected corruption and the

misappropriation of public moneys or other public property by officials.

2) Without derogating from the provisions, any request or complaint in

respect of instances or matters referred to in that provisions, may include

any instance or matter in respect of which the Ombudsman has reason tosuspect:

a) That the provisions of any law or under the authority of the State or by

any person in its employment, or that any practice is so followed, in a

manner which is not in the public interest.

b) That the powers, duties or functions which vest in the State or, body or

institution, or any person in its employment are exercised or performed

in an irregular manner.

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3) That moneys forming part of the funds of the State or body or institution, or

received or held by or on behalf of the State or body or institution are being

or have been dealt with an irregular manner.

4) Any person wishing to lay any instance or matter referred to in provisions

before the Ombudsman shall do so in such manner as the Ombudsman may

determine or allow.

5) The Ombudsman shall not be required to investigate any instance or matter

referred to in the provisions which has been laid before him or her under the

provisions when the grounds on account of which the inquiry is desired is in

the opinion of the Ombudsman.

The provisions shall not apply in respect of any decision taken in or in connection

with any civil or criminal case by a court of law.

3.7.6) GROUNDS OF COMPLAINTS LODGED UNDER BO

The type and scope of the complaints which may be considered by a Banking

Ombudsman is very comprehensive, and it has been empowered to receive and

consider complaints pertaining to the following :

1) Non-payment or inordinate delay in the payment or collection of cheques,

drafts, bills, etc.;

2) Non-acceptance, without sufficient cause, of small denomination notestendered for any purpose, and for charging of commission for this service;

3) Non-acceptance, without sufficient cause, of coins tendered and for charging of

commission for this service;

4) Non-payment or delay in payment of inward remittances ;

5) Failure to issue or delay in issue, of drafts, pay orders or bankers cheques;

6) Non-adherence to prescribed working hours;

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7) Failure to honor guarantee or letter of credit commitments;

8) Failure to provide or delay in providing a banking facility (other than loans and

advances) promised in writing by a bank or its direct selling agents;

9) 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 ;

10)Delays in receipt of export proceeds, handling of export bills, collection of bills

etc., for exporters provided the said complaints pertain to the bank's operations

in India;

11)Refusal to open deposit accounts without any valid reason for refusal;

12)Levying of charges without adequate prior notice to the customer;

13)Non-adherence by the bank or its subsidiaries to the instructions of Reserve

Bank on ATM/debit card operations or credit card operations;

14)Non-disbursement or delay in disbursement of pension to the extent the

grievance can be attributed to the action on the part of the bank concerned, (but

not with regard to its employees);

15)Refusal to accept or delay in accepting payment towards taxes, as required by

Reserve Bank/Government;

16)Refusal to issue or delay in issuing, or failure to service or delay in servicing or

redemption of Government securities.

17)Forced closure of deposit accounts without due notice or without sufficient

reason;

18)Refusal to close or delay in closing the accounts;

19)Non-adherence to the fair practices code as adopted by the bank; and

20)Any other matter relating to the violation of the directives issued by the

Reserve Bank in relation to banking or other services.

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Vide their Circular No.CSD.BOS.4638/13.01.01/2006-07 dated May 24, 2007, the

Reserve Bank of India has amended their Banking Ombudsman Scheme, 2006 and the

scheme shall be operative with amended effect.

A customer can also lodge a complaint on the following grounds of deficiency in

service with respect to loans and advances:

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-adherence to the provisions of the fair practices code for lenders as

adopted by the bank or Code of Banks Commitment to Customers, as the case

may be;

5) Non-observance of any other direction or instruction of the Reserve Bank as

may be specified by the Reserve Bank for this purpose from time to time.

6) The Banking Ombudsman may also deal with such other matter as may be

specified by the Reserve Bank from time to time.

3.7.7) COMPLAINTS NOT TO BE CONSIDERED BY BO

Ones complaint will not be considered by Banking Ombudsman if:

a) One has not approached his bank for redressal of his grievance first.

b) One has not made the complaint within one year from the date one has received the

reply of the bank or if no reply is received if it is more than one year and one month

from the date of representation to the bank.

c) The subject matter of the complaint is pending for disposal / has already been deal

with at any other forum like court of law, consumer court etc.

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d) Frivolous or vexatious.

e) The institution complained against is not covered under the scheme.

f) The subject matter of the complaint is not within the ambit of the Banking

Ombudsman.

g) If the complaint is for the same subject matter that was settled through the office of

the Banking Ombudsman in any previous proceedings.

3.7.8) PROCEDURE FOR FILING A COMPLAINT BEFORE BO:

1) Any person who has a grievance against a bank on any one or more of the

grounds mentioned in Clause 8 of the Scheme may, himself or through his

authorized representative (other than an advocate), make a complaint to the

Banking Ombudsman within whose jurisdiction the branch or office of the

bank complained against is located.

2) Complaints arising out of the operations of credit cards, shall be filed before

the Banking Ombudsman within whose territorial jurisdiction the billing

address of the card holder is located and not the place where the bank

concerned or the credit card processing unit is located.

3) The complaint shall be made in writing duly signed by the complainant or his

authorized representative and shall as far as possible be in the form and shall

contain such particulars as specified in the Scheme.

4) The complainant shall file along with the complaint, copies of the documents,

if any, which he proposes to rely upon and also a declaration that the

complaint is maintainable as per clause 9(3) of the Scheme.

5) A complaint can also be made through electronic means.

6) The complainant shall before making a complaint to the Banking Ombudsman,

make a written representation to the bank.

7) The complaint can be filed if the bank has rejected the complaint or the

complainant had not received any reply within a period of one month after

the bank received his representation or if the complainant is not satisfied with

the reply given to him by the bank.

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8) The complaint to the Banking Ombudsman is to be made not later than one

year after the complainant has received the reply of the bank to his

representation or, where no reply is received, not later than one year and one

month after the date of the representation to the bank.

9) The complaint should not be in respect of the same subject matter which was

settled or dealt with on merits by the Banking Ombudsman in any previous

proceedings whether or not received from the same complainant or along with

one or more complainants or one or more of the parties concerned with the

subject matter.

10) The complaint should 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 order has been passed by any such court,

tribunal, arbitrator or forum.

11) The complaint should not be frivolous or vexatious in nature.

12) The complaint should be made before the expiry of the period of

limitation prescribed under the Indian Limitation Act, 1963 for such claims.

3.7.9) POWER TO CALL FOR INFORMATION

(1) For the purpose of carrying out his duties under this Scheme, a Banking

Ombudsman may require the bank against whom the complaint is made or anyother

bank concerned with the complaint to provide any information or furnishcertified

copies of any document relating to the complaint which is or is alleged to be in its

possession.

Provided that in the event of the failure of a bank to comply with the

requisition without sufficient cause, the Banking Ombudsman may, if he deems fit,

draw the inference that the information if provided or copies if furnished would be

unfavorable to the bank.

(2) The Banking Ombudsman shall maintain confidentiality of any information

or document that may come into his knowledge or possession in the course of

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discharging his duties and shall not disclose such information or document to any

person except with the consent of the person furnishing such information or

document.

Provided that nothing in this clause shall prevent the Banking Ombudsman

from disclosing information or document furnished by a party in a complaint to the

other party or parties to the extent considered by him to be reasonably required to

comply with any legal requirement or the principles of natural justice and fair play in

the proceedings.

3.7.10) SETTLEMENT OF COMPLAINT BY AGREEMENT

(1) As soon as it may be practicable to do, the Banking Ombudsman shall send

a copy of the complaint to the branch or office of the bank named in the complaint,

under advice to the nodal officer referred to in Sub Clause (3) of Clause 15, and

endeavour to promote a settlement of the complaint by agreement between the

complainant and the bank through conciliation or mediation.

(2) For the purpose of promoting a settlement of the complaint, the Banking

Ombudsman may follow such procedure as he may consider just and proper and he

shall not be bound by any rules of evidence.

(3) The proceedings before the Banking Ombudsman shall be summary in

nature.

3.7.11) AWARD BY THE BANKING OMBUDSMAN

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(1) If a complaint is not settled by agreement within a period of one month

from the date of receipt of the complaint or such further period as the Banking

Ombudsman may allow the parties, he may, after affording the parties a reasonable

opportunity to present their case, pass an Award or reject the complaint.

(2) The Banking Ombudsman shall take into account the evidence placed

before him by the parties, the principles of banking law and practice, directions,

instructions and guidelines issued by the Reserve Bank from time to time and such

other factors which in his opinion are relevant to the complaint.

(3) The award shall state briefly the reasons for passing the award.

(4) The Award passed under Sub Clause (1) shall contain the direction/s, if any,

to the bank for specific performance of its obligations and in addition to or otherwise,

the amount, if any, to be paid by the bank to the complainant by wayof compensationfor any loss suffered by the complainant, arising directly out of the act or omission of

the bank.

(5) Notwithstanding anything contained in Sub Clause (4), the Banking

Ombudsman shall not have the power to pass an award directing payment of an

amount which is more than the actual loss suffered by the complainant as a direct

consequence of the act of omission or commission of the bank, or ten lakh rupees

whichever is lower.

(6) In the case of complaints, arising out of credit card operations, the Banking

Ombudsman may also award compensation not exceeding Rs. 1 lakh to the

complainant, taking into account the loss of the complainant's time, expenses incurred

by the complainant, harassment and mental anguish suffered by the complainant.

(7) A copy of the Award shall be sent to the complainant and the bank.

(8) An award shall lapse and be of no effect unless the complainant furnishes to

the bank concerned within a period of 30 days from the date of receipt of copy of theAward, a letter of acceptance of the Award in full and final settlement of his claim.

Provided that no such acceptance may be furnished by the complainant if he

has filed an appeal under Sub Clause (1) of clause 14.

(9)The bank shall, unless it has preferred an appeal under Sub Clause (1) of

Clause 14, within one month from the date of receipt by it of the acceptance in writing

of the Award by the complainant under Sub Clause (8), comply with the Award and

intimate compliance to the Banking Ombudsman.

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3.7.12) GROUNDS FOR REJECTION OF COMPLAINT BY BO:

The Banking Ombudsman may reject a complaint at any stage if it appears to him

that a complaint made to him is:

(a) Not on the grounds of complaint referred to in Clause 8 or otherwise not in

accordance with Sub Clause (3) of clause 9; or

(b) Beyond the pecuniary jurisdiction of Banking Ombudsman prescribed

under Clause 12 (5) and 12 (6) or

(c) Requiring consideration of elaborate documentary and oral evidence and the

proceedings before the Banking Ombudsman are not appropriate for

adjudication of such complaint; or

(d) Without any sufficient cause; or

(e) That it is not pursued by the complainant with reasonable diligence; or

(f) In the opinion of the Banking Ombudsman there is no loss or damage or

inconvenience caused to the complainant.

3.7.13) APPEAL BEFORE THE APPELLATE AUTHORITY:

If one is not satisfied with the decision passed by the Banking Ombudsman, one

can approach the appellate authority against the Banking Ombudsmans decision.

Appellate Authority is vested with a Deputy Governor of the RBI.

One can also explore any other recourse and/or remedies available to him/her as per

the law. The bank also has the option to file an appeal before the appellate authority

under the scheme.

Any person aggrieved by an Award under clause 12 or rejection of a complaint for

the reasons referred to in sub clauses (d) to (f) of clause 13, may within 30 days of the

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date of receipt of communication of Award or rejection of complaint, prefer an appeal

before the Appellate Authority;

Provided that in case of appeal by a bank, the period of thirty days for filing an

appeal shall commence from the date on which the bank receives letter of acceptance

of Award by complainant under Sub Clause (6) of clause 12;

Provided that the Appellate Authority may, if he is satisfied that the applicant had

sufficient cause for not making the appeal within time, allow a further period not

exceeding 30 days;

Provided further that appeal may be filed by a bank only with the previous

sanction of the Chairman or, in his absence, the Managing Director or the Executive

Director or the Chief Executive Officer or any other officer of equal rank.

The Appellate Authority shall, after giving the parties a reasonable opportunity of

being heard:

a) Dismiss the appeal; or

b) Allow the appeal and set aside the award; or

c) Send the matter to the Banking Ombudsman for fresh disposal in

accordance with such directions as the appellate authority may consider

necessary or proper; or

d) Modify the award and pass such directions as may be necessary to give

effect to the modified award; or

e) Pass any other order as it may deem fit.

The order of the Appellate Authority shall have the same effect as the Award

passed by Banking Ombudsman under clause 12 or the order rejecting the complaint

under clause 13, as the case may be.

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The banks covered by the Scheme shall ensure that the purpose of the Scheme

and the contact details of the Banking Ombudsman to whom the complaints are to be

made by the aggrieved party are displayed prominently in all the offices and branches

of the bank in such manner that a person visiting the office or branch has adequate

information of the Scheme.

CHAPTER IV

DIFFERENCE BETWEEN

BANKING OMBUDSMAN

SCHEME 1995, 2002 & 2006

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4.1) INTRODUCTION

The Ombudsmans task is to provide citizens with a means of redress for

maladministration. By performing this role, the Ombudsman helps, first, to relieve the

burdens of litigation by promoting friendly settlement and making recommendations

to avoid the need for proceedings in courts; and second, to promote the effective

implementation of citizen's rights. The Ombudsman is impartial and has a conciliatoryapproach.

In India, any person whose grievances against a bank are not resolved to his

satisfaction by that bank within a period of two months then he can approach the

Banking Ombudsman for redressal. This is however subject to the complaint

pertaining to any of the matters specified in the Banking Ombudsman Scheme.

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Reserve Bank of India (RBI) which assumes the role similar to that of quasi-

legal machinery as it is established by a competent authority to provide for an

additional but optional legal remedy for effective, expeditious and inexpensive

redressal of customer grievances. Towards effective compliance of this optional legal

remedy it introduced the Banking Ombudsmen Scheme in 1995 and got it further

amended in 2002 and in 2006.

The Reserve Bank of India notified the revised Banking Ombudsman Scheme,

2006 which came into effect from January 1, 2006. The new scheme widens its scope

thereby to include customer complaints on certain areas like credit card complaints,

deficiencies in providing the promised services even by banks sales agents, levyingservice charges without prior notice to the customer and non- adherence to the fair

practices code as adopted by the individual banks. It is made applicable to all

commercial banks, regional rural banks and scheduled primary cooperative banks

whose principal place of business is in India.

The Revised Scheme with well-equipped staff is wholly funded by the Reserve

Bank of India. This new scheme allows the complainants to file a complaint in any

form, including online and the bank customers are entitled to file an appeal with the

Reserve Bank of India. It provides a forum for bank customers for redressal of their

common complaints against banks. On the basis of the new Banking Ombudsman

Scheme, 2006 the customers are also privileged to complain about non-payment or

any inordinate delay in payments or collection of cheques towards bills or remittances

by banks, as also non acceptance of small denomination notes and coins or charging

of commission for acceptance of small denomination notes and coins by banks. The

Banking Ombudsmen currently have their offices in 15 centers covering the entire

country.

4.2) IS THE NEW BANKING OMBUDSMAN SCHEME 2006

DIFFERS FROM ITS PREVIOUS SCHEMES?

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The vision behind the emergence of Banking Institution is to evolve into a

strong, sound and globally competitive financial system, providing integrated services

to customers from all segments, leveraging on technology and human resources,

adopting the best accounting and ethical practices and fulfilling corporate and social

responsibilities towards all stakeholders. As a part of this vision, the RBI lodgedvarious Ombudsman schemes till today which forms a part of our discussion.

Yes, the new scheme 2006 differs from its previous schemes. The extent and

scope of the scheme, 2006 is much wider than its earlier schemes of 1995 and 2002.

Because the new scheme introduces for the first time;

1)Includes complaints relating to credit cards, deficiencies in providing the

promised services by banks and its marketing agents, levying of service charges

without prior notice to the customers and non-compliance of fair practice codes by the

banks;

2) Facilitates the submission of complaints through online;

3) Establishes an appellate authority to facilitate appeals against the awards

rendered by the Banking Ombudsmen instead of filing with the Review Authority for

review of such awards.

The extent and scope of the new Scheme is wider than the earlier Scheme of 2002.

The new Scheme also provides for online submission of complaints. The new Scheme

additionally provides for the institution of an 'appellate authority' for providing scope

for appeal against an award passed by the Ombudsman both by the bank as well as the

complainant.

In exercise of the powers conferred by Section 35A of the Banking Regulation

Act, 1949 and in partial modification of its Notification dated December 26, 2005,

Reserve Bank of India hereby amends the Banking Ombudsman Scheme 2006 to the

extent specified in the Annex hereto. The Reserve Bank hereby directs that all

commercial banks, regional rural banks and scheduled primary co-operative banks

shall comply with the Banking Ombudsman Scheme, 2006 as amended hereby. The

amendments in the Scheme shall come into force from January 1, 2006.

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4.3) AMENDMENT PASSED BY RBI FOR THE CHANGES IN

BANKING OMBUDSMAN SCHEME, 2006:

Amendment 1:

RBI expands Scope of Banking Ombudsman Scheme; Includes Fair

Banking Practices.

Date: 26 Dec 2005

The Reserve Bank of India today announced the revised Banking OmbudsmanScheme with enlarged scope to include customer complaints on certain new areas,

such as, credit card complaints, deficiencies in providing the promised services even

by banks' sales agents, levying service charges without prior notice to the customer

and non adherence to the fair practices code as adopted by individual banks.

Applicable to all commercial banks, regional rural banks and scheduled primary

cooperative banks having business in India, the revised scheme will come into effect

from January 1, 2006.

In order to increase its effectiveness, the revised Banking Ombudsman Scheme

will be fully staffed and funded by the Reserve Bank instead of the banks. Under the

revised Banking Ombudsman Scheme, the complainants will be able to file their

complaints in any form, including online. The bank customers would also be able to

appeal to the Reserve Bank against the awards given by the Banking Ombudsmen.

The new scheme provides a forum to bank customers to seek redressal of theirmost common complaints against banks, including those relating to credit cards,

service charges, promises given by the sales agents of banks, but not kept by banks, as

also, delays in delivery of bank services. The bank customers would now be able to

complain about non-payment or any inordinate delay in payments or collection of

cheques towards bills or remittances by banks, as also non- acceptance of small

denomination notes and coins or charging of commission for acceptance of small

denomination notes and coins by banks.

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The Reserve Bank had first introduced the Banking Ombudsman Scheme in

1995 to provide expeditious and inexpensive forum to bank customers for resolution

of their complaints relating to deficiency in banking services. The Scheme was revised

in 2002 mainly to cover Regional Rural Banks and to permit review of the Banking

Ombudsmens awards against banks by the Reserve Bank. The Banking Ombudsmen

currently have their offices in 15 centers.

The Reserve Bank is also in an advanced stage of setting up an independent

Banking Codes and Standards Board of India to ensure that comprehensive code of

conduct for fair treatment to customers are formulated by banks and adhered to. The

Reserve Bank of India had announced setting up of the Board in its Annual Policy for2005-2006 announced by the Governor, Dr Y V Reddy in April 2005.

Amendment 2:

Customers can now appeal against the Banking Ombudsman's

Decision.

Date: 24 May 2007

Bank customers can now appeal against the decision of the Banking

Ombudsman where he has rejected the customer's complaint relating to matters falling

within the grounds of complaints specified under the scheme. The Reserve Bank of

India has amended the Banking Ombudsman Scheme, 2006 to enable the customers to

appeal against the Banking Ombudsman's decision. The amendments are available on

the RBI website. Before the scheme was amended, the bank customers could appealonly against the awards given by the Banking Ombudsman. The appellate authority

for the Banking Ombudsman Scheme is the Deputy Governor of Reserve Bank of

India.

It may be recalled that in the Annual Policy for 2007-2008, the Reserve Bank

had announced that based on customer feedback, it would amend the Banking

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Ombudsman Scheme, 2006 to extend the appeal option also to the decisions of the

Banking Ombudsman.

Originally introduced in 1995, the Banking Ombudsman Scheme enables

speedy and cost effective resolution of complaints of bank customers relating to

deficiency in bank services. The Scheme now covers all Scheduled Commercial

Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks. The

customers can also now complain to the Banking Ombudsman against deficiency in

almost any banking services, including credit cards, after exhausting the channel

available with the bank concerned for resolving their complaints. The Reserve Bank

has appointed 15 Banking Ombudsmen who are located mostly in State Capitals under

the Scheme. The Banking Ombudsman tries to resolve the complaint through

conciliation or mediation and even passes an award if it is not resolved through such

settlement.

Amendment 3:

RBI amends Banking Ombudsman Scheme: includes complaints

relating to Internet Banking and Non-adherence to BCSBI Code.

Date: 05 Feb 2009

The Reserve Bank of India has widened the scope of its Banking Ombudsman

Scheme 2006, to include deficiencies arising out of internet banking. Under the

amended Scheme, a customer would also be able to lodge a complaint against the

bank for its non-adherence to the provisions of the fair practices code for lenders or

the Code of Bank's Commitment to Customers issued by the Banking Codes and

Standards Board of India (BCSBI). The BCSBI is an independent and autonomous

watchdog set up by the Reserve Bank to monitor and ensure that the codes and

standards adopted by the banks for rendering banking services are adhered to in true

spirit.

As per the amended Scheme, the Banking Ombudsman can award

compensation not exceeding Rupees one lakh to the complainant in the case of

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complaints arising out of credit card operations, taking into account the loss of the

complainant's time, expenses incurred by him as also, harassment and mental anguish

suffered. Further, non-observance of the Reserve Bank's guidelines on engagement of

recovery agents by banks has also been brought specifically under the purview of the

Scheme.

Any customer who has a grievance against a bank can complain to the Banking

Ombudsman in whose jurisdiction the branch of the bank complained against is

located. Some banks have centralized certain transactions, like housing loans, credit

cards, etc. If there are complaints regarding such transactions, complaints would have

to be made to the Banking Ombudsman in the State in which the bank customer

receives the bill.

In addition, the Reserve Bank has simplified the format for lodging complaint

to the Banking Ombudsman. Though the complainant need not lodge his complaint in

a specific format, the Scheme now provides for an easy-to-fill format for lodging

complaints, in case complainants prefer to use it. The jurisdictions of the Banking

Ombudsman at Kanpur, New Delhi, Chandigarh, Chennai and Thiruvananthapuram

have been rationalized to include/exclude certain areas taking into account the

geographical proximity of those areas to the Office of the Banking Ombudsman.

The amended Scheme however, does not include certain banking transactions,

such as, failure to honor bank guarantee or letter of credit, etc. Complaints on these

areas of banking services are insignificant in number.

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CHAPTER V

CONSUMER GRIEVANCES

DURING 2007 2010

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5.1) NUMBER OF COMPLAINTS RECEIVED

The Banking Ombudsman Offices receive complaints pertaining to deficiency

in service provided by banks. The number of complaints received has increasedsubstantially over the years and this trend is maintained during the year 2009-10 also

by recording an increase of 15% over the previous year.

Table 1 - Number of complaints received by the BO Offices

Period No. of BO offices No. of complaints

received during theyear

Rate of increase (%

over previous year)

2005-06 15 31,732 20

2006-07 15 38,638 22

2007-08 15 47,887 24

2008-09 15 69,117 44

2009-10 15 79,266 15

The number of complaints received has recorded substantial increase since

2006 as new grounds of complaints such as credit card issues, failure in providing the

promised facilities, non-adherence to fair practices code and levying of excessive

charges without prior notice, etc were included in the Scheme. Further, internet

banking related complaints were added as a new ground for complaint as per the

February 3, 2009 amendment of the Scheme. Increased awareness among the public

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about the BOS and online accessibility to BO office through internet also contributed

to the increase in receipt of complaints.

Chart 1 - Number of complaints received

5.2) BO OFFICE WISE RECEIPT OF COMPLAINTS

The 15 Offices of the Banking Ombudsman receive and consider complaints from

customers relating to the deficiencies in banking services in respect to their territorial jurisdiction.

The current territorial jurisdiction is given in Annex1.

Table 2- BO Office-wise Receipt of ComplaintsBO

Office

No. of complaints received during %

increase

in 2009-

10 over

% to

total

complain

ts

2007

-08

2008-

09

2009-10 2008-

09

Ahmeda

bad

2855 3732 4149 11 5.2

Bangalore 2975 3255 3854 18 4.9

Bhopal 3402 3375 3873 15 4.9

Bhubane

swar

998 1159 1219 5 1.5

Chandig

arh

2331 2634 3234 23 4.1

Chennai 4545 10381 12727 23 16.10

Guwahat

i

282 455 528 16 0.6

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Hyderab

ad

2843 3961 5622 42 7.1

Jaipur 3369 3688 4560 24 5.8

Kanpur 5340 7776 7832 1 9.9

Kolkata 2815 3671 5326 45 6.7Mumbai 6070 9631 10058 5 12.7

New 6742 10473 12045 15 15.20

Delhi

Patna 1480 2110 1707 - 2.2

Thiruvan

an-

thapura

m

1840 2816 2532 - 3.2

Total 47887 69117 79266 15% 100%

Four BO offices at Chennai, New Delhi, Mumbai and Kanpur accounted for

54% of all the complaints in that order, with Chennai at 16.10%, followed by New

Delhi 15.20%, Mumbai 12.7% and Kanpur at 9.9%. Among other BO offices,

Hyderabad accounted for 7.1% of the complaints followed by Kolkata 6.7%.

Percentage wise, Kolkata office witnessed the highest increase in the number of

complaints 45% during the year, followed by Hyderabad 42%.

Chart 2 - BO Office wise Receipt of Complaints

5.3) AVEARAGE NUMBER OF COMPLAINTS RECEIVED

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Average number of complaints received per BO office is also on the increase

due to enlargement of the scope of the Scheme coupled with the awareness

programmes undertaken by the BO offices on a regular basis.

Table 3 - Average Number of Complaints received per BO Office

Period No. of BO offices No. of

complaints

received during

the year

Average No. of

complaints

received per BO

office

2005-06 15 31732 2115

2006-07 15 38638 2576

2007-08 15 47887 3192

2008-09 15 69117 4608

2009-10 15 79266 5284

On an average, each BO office handled 5284 complaints during the current

year as compared to just 2115 complaints during the year 2005-06, indicating the

popularity of the Scheme.

Chart 3 Average number of Complaints received per BO Office

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5.4) REGION WISE RECEIPT OF COMPLAINTS

The offices of the Banking Ombudsman received maximum number of

complaints from rural and metropolitan areas during the year 2009-10. This is a

testimony to the success of the awareness efforts undertaken by the Offices of the

Banking Ombudsman as well as the RBI Regional Offices through personal/village

visits, media campaign etc. During the year, the RBI had celebrated its platinum

jubilee and all offices including Central Office Departments had conducted outreach programmes. Further, Top Executives of the Bank had visited very remote and

moffusil areas of the country as a part of outreach activity of Platinum Jubilee year

celebrations. The detailed region wise position of complaints is given below:

Table 4- Region-wise receipt of Complaints at the BO Offices

Region No of

complaints

receivedduring

2007-08

No of

complaints

receivedduring

2008-09

No of

complaints

receivedduring

2009-10

% increase

Rural 8418 13915 25,055 (32%) 80%

Semi Urban 6641 9817 10,741(14%) 9%

Urban 10,978 15,723 16,423 (20%) 5%

Metropolita 21,850 29,662 27,047(34%) (-) 9%

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n

Total 47,887 69,117 79,266

(100%)

15%

While the number of complaints from rural areas increased by 80 % during the

year 2009-10, complaints from the semi-urban areas increased by 9 % only. On the

other hand, complaints from the metros had decreased by 9%. These figures can be

well compared against the total increase in the number of complaints by 15 %.

Chart 4 Region wise receipt of Complaints

5.5) MODEWISE RECEIPT OF COMPLAINTS

Complainants can log on to the RBI web site at www.rbi.org.in and complain

about deficiency in banks services by using the online complaint form. The email ids

of the Banking Ombudsmen are also available in the public domain and complainants

can send emails to them. For those who have no access to internet, complaints can be

sent by post. During the year 2007-08, 2008-09 and 2009-10 the complaints received

by different modes are as under:

Table 5 - Mode wise Receipt of Complaints at the BO Offices

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Mode No. of Complaints

received during

2007-08

No. of Complaints

received during

2008-09

No. of Complaints

received during

2009-10

No. % No. % No. %

Email 7183 15% 15,927 23% 9221 12%

On line 7662 16% 9352

ombudsman services in banking industry1

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