What is the Banking Ombudsman Scheme?

• The Banking Ombudsman Scheme is an expeditious and inexpensive forum for bank customers for resolution of complaints relating to certain services rendered by banks. 
• It is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995. 

Who is a Banking Ombudsman?

• The Banking Ombudsman is a senior official appointed by the RBI to redress customer complaints against deficiency in certain banking services covered under the grounds of complaint specified under the Banking Ombudsman Scheme.

Grounds of complaints

• The Banking Ombudsman can receive and consider any complaint relating to the following deficiency in banking services:
  • non-payment or inordinate delay in the payment or collection of cheques, drafts, bills etc.;
  • non-acceptance, without sufficient cause, of small denomination notes tendered for any purpose, and for charging of commission in respect thereof;
  • non-payment or delay in payment of inward remittances; 
  • non-adherence to prescribed working hours;
  • failure to issue or delay in issue of drafts, pay orders or bankers’ cheques; etc.

When can one file a complaint?

• One can file a complaint before the Banking Ombudsman if the reply is not received from the bank within a period of one month after the bank concerned has received one’s complaint, or the bank rejects the complaint, or if the complainant is not satisfied with the reply given by the bank.
• It should be noted that one’s complaint will not be considered by the Ombudsman if he/she has not approached his bank for redressal of his grievance first.
• The Banking Ombudsman does not charge any fee for filing and resolving customers’ complaints.

Institutions covered under the Ombudsman Scheme

• All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Banking Ombudsman Scheme.
• In addition to this, the RBI has introduced separate ombudsman schemes for Non-Banking Financial Companies (NBFCs) and Digital Transactions with similar guidelines.

Internal Ombudsman Scheme, 2018

• To strengthen the grievance redressal mechanism for customers, the RBI introduced the ‘Internal Ombudsman Scheme, 2018’.
• It mandates Banks with more than 10 branches to have an Internal Ombudsman to review complaints that were partially or wholly rejected by the respective banks.
• It aimed to ensure that the complaints of the customers are redressed at the level of the bank itself so as to minimize the need for the customers to approach other fora for redressal.

Why in News?

• The Reserve Bank of India has directed deposit-taking NBFCs with more than 10 branches and non-deposit-taking NBFCs with an asset size of a minimum of 5 thousand Crore rupees to appoint an internal ombudsman within 6 months. 
• It will be an apex of their internal grievance redress mechanism. 
• All complaints that are partly or wholly rejected by the NBFC will be reviewed by the Internal Ombudsman before the final decision of the NBFC is conveyed to the complainant. The Internal Ombudsman will not entertain any complaints directly from the public. 

Related Information

What is a Non-Banking Financial Company (NBFC)?

• An NBFC is a company registered under the Companies Act, 1956 which provides banking services without meeting the legal definition of a bank. 
• They engage in the business of loans and advances, acquisition of shares, bonds, etc. issued by Government or local authority. They also deal in other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business.
• NBFC does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
• Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are examples of NBFCs.
• The working and operations of NBFCs are regulated by the RBI.

What is the difference between banks & NBFCs?

• NBFCs lend and make investments and hence their activities are similar to that of banks; however there are a few differences:
  1. NBFC cannot accept demand deposits;
  2. NBFCs cannot issue cheques drawn on itself;
  3. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks.

Reference:

1. https://newsonair.gov.in/News?title=RBI-directs-NBFCs-to-appoint-Internal-Ombudsman-within-6-months&id=429748