RBI proposes changes to strengthen banks’ internal ombudsman framework

The RBI has highlighted the build-up of risks in certain components of personal loans in the books of banks and NBFCs and advised them to strengthen their internal surveillance mechanisms and institute adequate safeguards.

The Reserve Bank of India (RBI) will soon issue consolidated guidelines to strengthen the internal ombudsman framework across entities it regulates – scheduled commercial banks, non-banking financial companies (NBFCs), prepaid payment instrument issuers and credit information companies (CICs).

The objective is to bring about uniformity in operational matters like timelines for escalating complaints to internal ombudsman officials, plan of action in case of temporary absence of internal ombudsman, minimum qualifications that she must possess, reporting formats and so on.

The RBI has also proposed to introduce the post of deputy internal ombudsman. “These instructions are expected to further strengthen the IO mechanism and in turn, the grievance redress system in the regulated entities,” the RBI said in its Statement on Developmental and Regulatory Policies.

Also read: RBI panel proposes measures to improve customer services at banks

The central bank had, in 2015, first introduced the Internal Ombudsman mechanism in some scheduled commercial banks to boost the efficiency of their internal grievance redressal systems. The objective was to facilitate fair hearing for customers and review their grievances internally before rejecting the complaints. The framework was later extended to cover select non-bank issuers of pre-paid instruments, NBFCs and all credit information companies.

In recent years, the RBI has announced a host of measures aimed at strengthening the internal grievance redressal frameworks at banks as well as external (RBI-appointed) ombudsman schemes. Most recently, in June this year, the RBI-instituted BP Kanungo committee proposed measures to improve customer services at banks including simpler know-your-customer (KYC) norms and hassle-free settlement of the accounts of deceased deposit holders, among other recommendations.

The committee found that over the past three years, the number of complaints against banks under the internal grievance redress mechanism was about 10 million to 11 million a year. The most complaints – as much as 79 percent – were against public sector banks in 2020-21.

Also read: Errors in your credit information report? File a complaint with RBI’s integrated ombudsman

The panel said that banks and other regulated financial institutions should update KYC but ought to ensure that account operations are not suspended. In many cases, banks insist upon KYC repeatedly even after customers have submitted all the documents.

It suggested that all regulated entities should maintain a centralised database of KYC documents of all customers, linked to a unique customer identifier, obviating the need for submitting KYC documents repeatedly.