Banking Ombudsman: Protection to Consumer

Banking Ombudsman: Protection to Consumer S.Gousia* Abstract Banking being a service industry a well defined and functional mechanism to ensure fairness and satisfaction to the bank users is important hence RBI has undertaken a large number of initiatives on ensuring fair treatment to customers.however, a number of challenges still need to be addressed to make customer services responsive to the 'small customer'. The Banking Ombudsman Scheme (BOS) attempts to Treating the bank customers fairly with the awakening of consumers on the issues of investor/consumer protection. The present paper attempts to study and analyze the role and efforts of BOS as a part of Consumer Protection in banking services in India. Keywords: BO, Complaints, Ombudsman, Protection, RBI. *S.Gousia, Assistant Professor,Dept of MBA, Rajeev Gandhi Memorial College Engineering & Technology Nandyal, E-mail: gousiashaik@gmail.com

S.Gousia Assistant Professor,Dept of MBA Syamala Devi Institute of Technology For Women Nandyal. E-mail: gousiashaik@gmail.com Banking Ombudsman: Protection to Consumer ABSTRACT Banking being a service industry a well defined and functional mechanism to ensure fairness and satisfaction to the bank users is important hence RBI has undertaken a large number of initiatives on ensuring fair treatment to customers.however, a number of challenges still need to be addressed to make customer services responsive to the 'small customer'. The Banking Ombudsman Scheme (BOS) attempts to Treating the bank customers fairly with the awakening of consumers on the issues of investor/consumer protection. The present paper attempts to study and analyze the role and efforts of BOS as a part of Consumer Protection in banking services in India. Keywords: BO, Complaints, Ombudsman, Protection, RBI. INTRODUCTION There is an unprecedented growth in the service sector as a whole and the banking sector particularly in India leading to an increased the role of redressal mechanisms by anifolds. There has been an absence of any substantial legislation in the field of consumer rotection in the banking services. Banking Ombudsmen have been authorized to look into complaints concerning- a) Deficiency in banking service

b) Sanction of loans and advances in so far as they relate to non-observance of the RBI directives on interest rates, delay in sanction or non-observance of prescribed time schedule for disposal of loan applications or non-observance of any other directions or instructions of RBI as may be specified for this purpose from time to time, and c) Such other matters as may be specified by RBI. OBJECTIVES 1. To study mode wise complaints in India 2. To study disposal of complaints 3. To study Rejections of complaints BACKGROUND The Reserve Bank introduced the BOS in India on June 14, 1995 to provide an xpeditious and inexpensive forum to bank customers for resolution of their complaints relating to deficiency in banking services provided by commercial banks, regional rural banks and scheduled primary cooperative banks. There are 15 offices of Banking Ombudsman (OBOs), spread across the country. The feedback gathered in the course of administering the BOS has been used by RBI to modify the Scheme in 2002, 2006, 2007 and 2009, to include, among other things, customer complaints on new areas such as credit card complaints, internet banking, deficiencies in providing the promised services by both bank and its sales agents (DSAs), levying service charges without prior notice to the customers, non- adherence to the Fair Practices Code adopted by individual banks, etc. From a total of 11, when the BO Scheme was started in 1995, today, the BO Scheme provides for 27 grounds of complaints / deficiencies in bank services. RBI operates the BOS, free of cost, so as to make it accessible to all. In order to increase its effectiveness and utility, BOS is today fully staffed and funded by RBI. MEANING OF BANKING OMBUDSMAN (BO): The word Ombudsman ( ahm bedz man ) in general means a public official who is appointed to investigate the citizen s 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 BO if his complaint pertains to any of the matters specified in the Scheme. The Scheme envisages expeditious and satisfactory disposal of customer complaints in a time bound manner. The BOs on receipt of any complaint endeavors to promote, if necessary, a settlement of the complaint by agreement between the complainant and the bank named in the complaint through conciliation or mediation. HISTORY BANKING OMBUDSMAN IN INDIA: The Banking Ombudsman Scheme was formally launched in 1995 to provide an alternative cost effective dispute resolution mechanism. The BOS has served the country and its banks customers well. The feedback gathered in the course of administering the scheme has been used by the RBI to modify the scheme with a view to cover the maximum customer touch points and products. The growing number of complaints under the BOS is an indicator of the increasing awareness of our customers and also the timely action taken by the RBI to focus customer-centric. The scope of the Banking Ombudsman Scheme 2006 was widened to include deficiencies arising out of internet banking in which, 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), as per the Notification dated February 3, 2009. Further, nonobservance of the RBI guidelines on engagement of recovery agents by banks has also been brought

specifically under the purview of the Scheme. The amended Scheme, does not include certain banking transactions, such as, failure to honor bank guarantee or letter of credit, etc. since complaints on these areas of banking services are insignificant in number. The existing provisions allow the Banking Ombudsman to award compensation for the actual loss suffered by the complainant as a direct consequence of the act of omission or commission of the bank or Rupees Ten Lakh whichever is lower. As per the amended Scheme, the Banking Ombudsman can also award compensation not exceeding Rupees One Lakh to the complainant in the case of 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. REVIEW OF LITERATURE The number of studies has been conducted regarding the services of banking ombudsman to their customers. Aparna Meduri (2006) argues that the Banking Ombudsman under the Banking Ombudsman Scheme and the Consumer Redressal Authorities under the Consumer Protection Act both redresses the cases on deficiency of banking service. However, there exists a difference both in terms of redressal machinery and the procedure for redressal and makes an attempt to give out the reasons why most of the aggrieved bank customers prefer to take shelter under the Consumer Protection Act instead of under their Banking Ombudsmen Scheme, and finally the proposed remedy for it. Chatterjee (2007) critically evaluated various schemes of banking ombudsman schemes in operation from time to time. Singh (2006) found that majority of respondents (63%) surveyed had no knowledge about the bank ombudsman scheme irrespective of their banks and none of the surveyed respondents had ever filed a complaint with bank ombudsman. Khan (2010) suggested that attempts should be made to increase the instances of disputes being resolved by mediation/conciliation rather than by awards. Further, in the event, if ombudsman has to give an award; it must be made final and binding on the parties with only single appeal allowed to a higher court of law. As far as performance of bank ombudsman is concerned no exhaustive study has been conducted so far. PROCEDURE FOR LODGING COMPLAINT TO THE BANKING OMBUDSMAN: The RBI has simplified the format for lodging complaint to the Banking Ombudsman through an easy-tofill specific format for lodging complaints, in case complainants prefer to use it. For wider dissemination, the RBI has asked all banks to place a copy of the Banking Ombudsman Scheme on their website. Complainants can log on to the RBI web site at www.rbi.org.in and complain about deficiency in bank s 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. Complaints can also be sent by post. Complaints received are acknowledged and tracked till they are closed in the books of the Office of the Banking Ombudsman. 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. The Complaint Tracking Software in place in the Banking Ombudsman Office gives acknowledgement automatically and complaint number is given as soon as it is taken into the book of the Banking Ombudsman. The Complaint Tracking Software is updated from time to time to meet the changing requirements related to complaints. Table 1. Complaint handling procedure The Banking Ombudsman on receipt of complaint, considers the following issues: Is the complaint against a bank/ entity covered under the scheme? Is it a first resort complaint? If yes, handle the complaint. If no, advise the complainant to approach the appropriate authority. If yes, the complainant is advised to approach the bank s redressal

mechanism. Has the complainant approached the Banking Ombudsman within a year of receipt of reply from the bank? Has the complaint been made before the expiry of the Indian Limitation Act, 1963? Has the complaint been handled earlier? Is the complaint pending before any court or tribunal or arbitrator or any other forum or has the decision been given by these foray? If yes, handle the complaint. If no, advise the complainant of other alternatives. If no, handle the complaint. If yes, advise the complainant of other alternatives If yes, advise the complainant the rules of jurisdiction of Banking Ombudsman Source: RBI, Annual Report on Banking Ombudsman Scheme, 2009-10 PROGRESS OF BANKING OMBUDSMAN IN INDIA: The Total numbers of Banking Ombudsman offices have remained 15 over a period of 2004-05 to 2008-09 but the numbers of complaints registered have been growing continuously since 2004-05 and positive growth trends are found year after year. This also shows awareness by customer about rights and response toward to BOS. According to the RBI, Annual Report on Banking Ombudsman Scheme, 2009-10, there had been continuous growth in number of complaints received through Banking Ombudsman from 2004-05 to 2008-09. Out of total no of 192518 complaints received by Banking Ombudsman Office, Maximum Complaints are received SBI and group i.e. 56067 followed by Private Sector 53712, then by Nationalized Banks are 52811, Foreign Banks received 25203, RRBs 3361 and least were received by Scheduled Primary Co-operative banks 1364. Also that out of 131517 complaints received from 2006-07 to 2008-09 maximum complaints were pertaining to Credit cards and the least was attracted by notes and coins complaints total stood up to 384. Table 2. Complaints received Period No. of BO Offices No. of complaints % Increase Avg. No. of Complaints 2004-05 15 10560 28 704 2005-06 15 31732 200.49 2115 2006-07 15 38638 21.76 2576 2007-08 15 47887 23.94 3192

2008-09 15 47887 44.33 4608 Source: RBI, Annual Report on Banking Ombudsman Scheme, 2009-10 Table 3. Office-wise receipt of complaints BO Office No. of Complaints received during % increase in 2009-10 over % to total complaints 2007-08 2008-09 2009-10 2008-09 Ahmadabad 2855 3732 4149 11 5.2 Bangalore 2975 3255 3255 18 4.9 Bhopal 3402 3375 3873 15 4.9 Bhubaneswar 998 1159 1219 5 1.5 Chandigarh 2331 2634 3234 23 4.1 Chennai 4545 10381 12727 23 16.10 Guwahati 282 455 528 16 0.6 Hyderabad 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 6.7 Mumbai 6070 9631 10058 5 12.7 New Delhi 6742 10473 12045 15 15.20 Patna Thiruvananthapuram Total Source: RBI, Annual Report on Banking Ombudsman Scheme, 2009-10 From Table No 2& 3 it can be seen that there has been a continuous increase in the number of complaints received by BO offices all over India showing the increased awareness of BO services among people.

1. MODE WISE COMPLAINTS WITH BOS IN INDIA: Table No-4 shows the complaints received by different modes are as under during the year 2007-08 and 2008-09. As per the Notification dated February 3, 2009, the scope of the Banking Ombudsman Scheme 2006 was widened to include deficiencies arising out of internet banking in which, 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). Further, non-observance of the RBI guidelines on engagement of recovery agents by banks has also been brought specifically under the purview of the Scheme. The amended Scheme, does not include certain banking transactions, such as, failure to honor bank guarantee or letter of credit, etc. since complaints on these areas of banking services are insignificant in number. Table 4. Mode wise receipt of complaints with BOS Source: RBI, Annual Report on Banking Ombudsman Scheme, 2009-10 From the above table No.4 it can be seen that Mode wise receipt of complaints with BOS as a percentage to total shows that total number of complaints have gone up to 69117 from 47887 in 2007-08 and complaints made on email have increased to 23 per cent from 15 per cent compared to last year and complaints made online have declined to 14 per cent from 16 percent than previous year. It is obvious that complaint can be registered these days by emails are faster and with rising computer literacy level and awareness of consumer rights are inflating the number of complaints made in 2007-08 from 15% to 23% after 2008-09. Online complaints have dropped from 16% in year 2007-08 to 14% in year 2008-09 mostly due to poor server conditions and web page responses. The complaints received by postcards and letters still remain high with a small drop in the complaints made by postcards from 69% in year 2007-08 to 63% 2008-09 showing an increase in the computer and internet literacy amongst the banking customers. And at the same time indicating lack of computer and internet facilities in rural and semi urban areas. Since 46% of the complaints are received from the rural (32%) and semi urban (14%) areas, the receipt of complaints through the postal mode has increased from 63% to 74% during the current year, indicating the less access to internet facilities in therural/semi urban areas as compared to the urban and metro. Email complaints have decreased from 23 % to 12 % of the total complaints during the year. Table 5. Region-wise receipt of complaints at the BO offices Region No of complaints received during 2007-08 No of complaints received during 2008-09 No of complaints received during 2009-10 % increase Rural 8418 13,915 25,055 (32%) 80%

Semi Urban 6641 9,817 10,741(14%) 9% Urban 10,978 15,723 16,423 (20%) 5% Metropolitan 21,850 29,662 27,047(34%) (-) 9% Total 47,887 69,117 79,266 (100%) 15% Source: RBI Annual Report on Banking Ombudsman Scheme, 2009-10 The Table No-5 shows region wise receipts of complaints and increase in the complaints from Rural areas is 80 per cent, and complaints from Metropolitan are reduced by 9 per cent. However, volume of complaints received is dominated by Metropolitan areas though out the period of 2007-2009-10. 2. DISPOSAL OF COMPLAINTS BY BOS/OFFICES BY DIFFERENT METHODS: The BOS have been consistently resolving the complaints and can be seen from table below. Table 6. Disposal of complaints by BO offices Particulars 2004-05 2005-06 2006-07 2007-08 2008-09 Complaints received during the year including complaints brought forward from previous year 12034 33363 44766 54992 75009 Source: RBI, Annual Report on Banking Ombudsman Scheme, 2009-10 Table No-6 shows the total number of complaints disposed off was 86% (2004-05) fallen to 82% (2005-06), then showing increase form 84% (2006-07) to 89% (2007-08) and again fallen to 87% (2008-09) showing an increasing trend in disposing complaints. Table No-7 below shows the breakup of disposal of complaints by the BOS by award and by settlement Table 7. Complaints disposed by award and settlements No of complaints disposed of Disposal by award Disposal by settlement

2004-2005 2005-2006 2006-2007 2007-2008 SIT Journal of Management Source: RBI Annual Report on Banking Ombudsman Scheme, 2009-10 The Table No-7 shows complaints disposed by award and settlements, clearly depicts that disposal of complaints by awards was 3.03% in year 2004-05 which declined to 0.98% in 2006-07 and further declined to 0.38% for year 2006-07 to 0.24% for year 2007-08. Only for year 2008-09 it has slightly risen to 0.32%. And disposal of complaints have been rising by settlements from 96.97% for year 2004-05 to 99.02% for 2005-06. It further increased to 99.62% in the year 2006-07 to 99.76% in 2007-08. It shows slight decline in year 2008-09 to 99.68% which is not very significant. This feature shows a falling trend in disposal of complaints by award and increasing trend in the disposal of complaints by settlements. 3. BASIS OF REJECTIONS OF COMPLAINTS BY BOS: Table 8. Reasons for rejection of complaints Reasons Complaints rejected during 2007-08 % Complaints rejected during 2008-09 % Source: RBI Annual Report on Banking Ombudsman Scheme, 2009-10 According to the RBI Report on Banking Ombudsman 2009-10, 38% of the Complaints have been redressed and remaining 62% have been rejected based on various reasons. The reasons for rejections are listed in Table No -8 above. In year 2008-09 it is found that generally complaints are rejected by BOS on the basis of reasons such as first resort complaints up to 42% followed by complaints outside the scheme 255 and 11% complaints due to without sufficient cause, incomplete address etc form 7%, Bank branches outside jurisdiction

(transferred to other BOs) 6%, other reasons such as Complaints pending in other forum and Complaints dealt earlier, not pursued by the complainants form 2% each, whereas complicated requiring elaborate evidence, frivolous complaints, time barred complaints form 1% each. CONCLUSION The Ombudsman scheme is a boon and a very important channel for redressal of grievances by the general public against banks and banking services. It is framed in such a manner that it does not oust the jurisdiction of other courts, and hence, aggrieved people do not hesitate in using the banking ombudsman as a primary forum for resolution of disputes regarding banks. The hallmark of the banking ombudsman probably is that it is in position to do justice in an individual case, in the sense it is not bound by the precedents and in certain circumstances, can ignore technicalities and legal rules of evidence while resolving disputes between aggrieved customer and the bank. Apart from above BO s offices have also started outreach activities for creating awareness amongcustomers like interface with banks, organizing awareness camps, participation in exhibitions, responding to readers queries in newspapers, broadcasting advertisements through AIR and Doordarshan and many others. So far the achievements of BOS have been remarkable however there is a lot to achieve. As number of complaint received are though significant and are handled but total consumer awareness needs to grow in order to the get total satisfaction of consumer and also BOS needs to handle complaints efficiently and promptly in order to not deny a consumer justice as its delayed is denied. Bank Ombudsman is limited to twenty seven grounds on which a customer can file a complaint against a bank and there is a dire need to expand the scope of ombudsman in the changing IT environment. A lot can be achieved by thought better corporate governance in banking sector and education of the customer. It is the money of customer which banking sector should be acting as a trustee. If customer is aware of his/her rights then it can be better protected by being vigilant for its interests of safeguarding its money and better services. Strict actions taken on banks who default cab help in protecting consumer interest in better way. Education that can improve awareness of banking sector customer which should be like a movement will help safeguarding the interest of the biggest stakeholder i.e. customer of the bank.