The essence of any democracy is hollow without accountability and
transparency. The idea of the administration being answerable to the public is
the valve of a functioning system. The administrative agencies and the citizenry
share an intricate relationship that permeates through every aspect of the
latter's life. The rights of the individual get compromised as a consequence of
the administrative mechanism overlooking the public sentiment. Thus, an
efficacious structure that guarantees accountability is a prerequisite to
protect the citizen's rights from the administration's fallibility.
This has resulted in feeling the need for a watchdog of the administration
The idea of law is to protect the Little Man' and that protector is the
institution of Ombudsman. The inception of this system was in Sweden, in
1809. This idea eventually traveled across the globe and was adopted by
several administrative paradigms. Ombudsman is a quasi-judicial organization
that functions as the shield against bureaucratic hegemony.
The ombudsman is an official who has been granted the duty to investigate the
complaints and allegations made by individuals against a government associated
organization, with respect to maladministration and corrupt practices by public
authorities. Refuge in the ombudsman may be sought due to the administrative
action, colored by indecorous concerns like bias, hostility, or arbitrariness.
The idea of an ombudsman is rooted in the need to build a democratic control
mechanism to check the powers of a state and create a culture of an open government
Dr. Massey, has analyzed that the primary objective that the Ombudsman aims to
achieve is to improvise the functioning of the government apparatus by modifying
its very perception.
...Its main catch is its apparent effectiveness despite minimal coercive
capabilities. It has its own role to play by bringing renaissance' and
humanism' in the working of modern governments which have tended to develop an
attitude to look to the paper rather than the person behind it.
The Ombudsman functions as a substitute for the central system for dispute
resolution between citizens and the administrative agency. However, it is
imperative to note, that as per the hierarchical structure, a Court of law is
undoubtedly at a higher ranking and a decision made by it will supersede a
decision by the Ombudsman. Thus, if a matter is pending before a court, it is
understood that the jurisdiction of the Ombudsman stands frustrated.
During the 1960s, the banking sector was subject to a lot of criticism by the
press, public and by the Public and Estimate committees of Parliament due to the
inadequate system of grievance redressal by banks. The Reserve Bank of India
(RBI) was repeatedly questioned and faced a lot of critique.
those complaints to all concerned banks and asked them to come up with a
strategy to combat the issue. This led to the formation of advisory bodies and
committees who had the prerogative to draft policy for tackling the
dissatisfaction prevalent in the banking sector. Since 1972, the banking
commission saw a shift in leadership from Sri R G Saraiya to RK Talwar and then
Goipora. All of them pressured the RBI to look into improving the quality of
service provided by banks.
Though many recommendations were taken into account,
along with banks implementing new strategies, there still was no significant
change in the standard of services. The Narasimham Committee drafted a report on
Banking and Financial Sector Reforms
which was an eye-opener in this
situation. That report emphasized upon various checks and balances measures
and introduced Banking Ombudsman Scheme 1995
. This scheme was imperative,
considering the changes in customer preferences were linked with the economic
policy shift in favor of liberalization and privatization.
The then Governor of
RBI, Dr. Rangarajan, declared the new The Banking Ombudsman Scheme' on
14th June 1995. The Ombudsman scheme was instituted through Section 35A of the
Banking Regulation Act 1949. The scheme was first revised in 2002 to broaden the
scope of the complaints entertained, and the kind of services offered. There
have been further amendments since then in 2006, 2007, 2009 and 2017.
revised Banking Ombudsman scheme came into power since 1st January 2006 with the
ambit of authority and power given to the ombudsman being widened to include
newer areas. The ombudsman currently has twenty offices and they are mostly
located in state capitals. The Ombudsman scheme governs overall commercial,
regional -rural, scheduled primary co-operative banks.
The RBI increased the ambit of the Scheme to combat the limitations stemming
from sale of Insurance, Mutual fund and other third party involved endeavors by
Banks. For instance, if the Jammu and Kashmir Bank is conducting sale of the
mutual funds by Reliance, and Reliance is unwilling or unable to deliver the
services claimed, then the Jammu and Kashmir bank will be held accountable for
Due to this revised scheme, a client may register a complaint
against the Bank for the bank's non-compliance to RBI guidelines with respect to
Mobile Banking or Electronic Banking services. The procedure for registering and
engaging with complaints has also been revised upon. The appeal is now permitted
for the complaints initially closed under Clause 13 (c) of the existing Scheme
regarding the rejection which was unavailable previously.
Procedure and Grounds for Complaint
A complainant cannot approach the Ombudsman directly without first registering a
complaint with the bank itself. If the bank does not respond for the duration of
a month or the complainant is unsatisfied with the bank's response, he can then
approach the Ombudsman.
Each branch of a bank is mandated by law to display the address of the office of
the banking ombudsman that has authority over this branch. To register a
complaint simply by stating all relevant information about the kind of loss, the
degree of it, and the amount of compensation sought.
Some of the common grounds for complaint are-
- Any unjustified delay or not paying the cheques, drafts
The bank refusing to accept a specific denomination of notes, without any
reasonable justification for the same.
If the bank does not accept taxes, as mandated by the government of India or the
- The banks levying an extra fee on the acceptance of small denomination
- The bank deferring or refusing to pay the inward remittances.
The three reliefs available to the complainant are:
- If the bank defers the issuance of government securities or fails to
either issue or redeem the government securities.
- If the banks impose by closing the deposits, without any valid
- If the bank does not close the account despite the client having
- Any unjustified and intentional delay in closing the accounts.
To further elucidate the procedure and grounds for complaint, we can refer to
the following cases-
- Directions to summon for information under Clause 10 of The Act.
- Settlement through agreement
In M/S Athena Energy Ventures Pvt. Ltd. Vs. Andhra Bank
, the court
held that if a customer is not informed about the pre-payment charges, then the
bank cannot levy those charges for the unexpired period of the Bank Guarantee.
In the case of Corporate Bank vs. Navin Shah
, Respondent claimed that
the bank had failed to receive money in foreign currency, and he sought damages
for the same. It was held that there was no deficiency of service on behalf of
the bank and that it had fulfilled all the obligations under the contract. It is
important for the Ombudsman to be unbiased when handling disputes, so as to not
let customers exploit the bank in the pretext of compensation.
Two concepts were established in the case of United Commercial bank vs. the
- If one chooses to move the Ombudsman eight years after the first refusal
of the bank on that issue, the complainant is time-barred for this action
under Clause 16(3)(b).
- When a series of litigation is pending in courts on the same subject
matter, then the Ombudsman has no jurisdiction on that matter.
The Ombudsman has been fulfilling its responsibility of maintaining the
financial health of the Indian banking system by strengthening the fiduciary
relationship between banks and customers. It is structured in such a fashion
that it does not interfere with the jurisdiction of any court, and therefore
aggrieved individuals seek recourse in the ombudsman as the primary channel of
addressing altercations with the bank.
The unique selling point of the ombudsman is its ability to dispense justice in
an individual case, without being restricted by precedents. In exceptional
situations, the ombudsman can even overlook the technicalities and legal
formalities of evidence when settling the contestation between the individual
and the bank.
There are multiple known and unknown risks and uncertainties that pose a threat
to the banking sector like cyber-security breaches, malware attacks, data
privacy breaches, phishing frauds, data theft, and misuse, etc. It is difficult
to anticipate the manner in which they will manifest and to what extent. Owing
to these risks, there has been an increase in the number of complaints more
complex than before due to which the role of the ombudsmen and their ability to
deal with such a dynamic financial environment is becoming increasingly
To further strengthen the grievance redressal mechanism, the Internal Ombudsman
(IO) mechanism was institutionalized in 2015 in all public sector banks and
selected private sector and foreign banks. Since then, all scheduled commercial
banks (besides regional rural banks) that have more than ten outlets in India
come under the coverage of the IO scheme.
The IO was set up to ensure that bank customers get an independent review of
their grievances and undivided attention is paid to resolve their complaints
before they approach the Banking Ombudsman.
To support the Ombudsman Framework, the RBI launched the Complaint Management
System in June 2019 that digitalized the processing of complaints received in
the offices of Banking Ombudsmen and Consumer Education and Protection Cells.
The CMS is a software application on the RBI's website through which customers
can lodge their complaints against any of the entities regulated by the RBI.
There is still scope left for improvement, if one enhances the corporate
governance in the banking industry. If banks are penalized with immediate
effect, it will set an example for other banks to not violate the rights of
their customers and provide a high standard of service.
There have been many suggestions on how to improve the current system and make
it more accommodative and inclusive. It is important to enhance the services
provided to the customers by making the procedure more flexible, informal and
leading to a quicker outcome. An emphasis on technology to facilitate
interpersonal customer service is also required. To improve the given situation,
significant share of learning, with ombudsman plans taking charge to utilize
casework insights to assist banks in enhancing the quality of service provided,
and adopting a key strategy to manage future altercations. Last but not the
least, sustained operational productivity is required. Ombudsman schemes should
be eager to manage complaints, build reputations based on trustworthiness, and
steer clear of backlogs.
The amount of transactions has significantly increased due to the newer payment
methods and banks introducing newer products and services. This, however,
increases the ambit for complaints. The resolution is important but what is
equally important is the speed at which one reaches the settlement. If the
complaints are met with unnecessary delay, customer retention becomes unlikely
as people will prefer to shift their account to another bank instead of waiting
for their issues to be responded to.
Despite an increase in the amount of complaints, there has not been an adequate
increase in the number of offices of the banking ombudsman. This is something
that needs to be looked into, by the RBI to ensure the pace of complaint
management is not slowed down over time.
The Ombudsman needs to come across as an unbiased authority to gain the trust of
consumers and ensure their protection.
The following are the metrics used to assess good governance and the scope of
Independence of the Institution
In order for the institution to be truly effective it is vital that it remain as
independent in its functions as possible and free from any kind of external
political or administrative interference. It is only when full freedom is
granted in the budget and recruitment of personnel that they are considered
independent. In addition, the personnel should be appointed in long fixed-term
and given a high fixed salary.
The true independence of the institution is an important consideration as far as
good governance is concerned. Compared to other countries, our system of
appointment of the ombudsman is very different. In India, the appointment of the
ombudsman is completely in the hands of the RBI from amongst its own employees.
This needs to be revised to ensure that the objective of the ombudsman scheme is
not lost. For the appointment of the ombudsman, it would be helpful to have an
independent counsel under the RBI which would include representatives of
customers as well as banks. The council should be free to appoint any qualified
person. It is important that whoever is appointed should have sufficient
knowledge and experience in the banking sector and a legal understanding as
The banking ombudsman in India has full freedom when it comes to the budget and
can spend money as and when the need be. In India, banking ombudsman have a
fixed tenure of three years which can be renewed and a high fixed salary but
research suggests that ombudsmen prefer being promoted to higher positions than
to be reappointed for another term.
Accessibility of the Institution
Awareness amongst the public is vital for the success of this institution. The
first step required is promotion of the scheme and education on the procedure of
the same to build awareness and accessibility. This is where availability of
resources like local offices, regional and local personnel and proper procedures
becomes important. It is imperative that these resources be organized in a
manner easily accessible to the wider public.
The offices of the Banking Ombudsman have initiated outreach programs to build
awareness. Some of the ways adopted to do this include conducting awareness
workshops, involvement in exhibitions, interface with banks, marketing and
advertising. If the customers are well equipped with knowledge about their
rights, then those rights will be better protected and customers will hesitate
less in approaching the ombudsman. Their awareness will spark their
In rural areas, advertisement campaigns were made available in regional
languages so as to reach more people. To increase the impact of these outreach
programs, each bank branch must come up with a structure to disseminate
information to customers about the scheme and provide clarity as to its
practical benefits over approaching legal forums.
For instance, as a way of creating awareness about the banking ombudsman scheme,
schools in Telangana and Andhra Pradesh included lessons on banking ombudsman in
their syllabus in the higher grades between the academic years 2013-14 and
2014-15. In 2011, it was decided at the Annual Conference of Banking Ombudsmen
that Townhall events will be conducted by each ombudsman office within its
jurisdiction in tier two cities. This however was not taken seriously and each
office conducted only two-three events annually.
Defend Jurisdiction and Adequate Power
To avoid clashes and conflict with other state bodies, a significant step would
be to assign a defined jurisdiction to this institution and to empower them with
adequate powers. Another factor that could increase the efficiency of the
Ombudsman is if the scheme is codified in order to entrust the Ombudsman with
certain authorities that the district court enjoys. For instance, the power to
summon witnesses, to legally demand disclosure of confidential information, and
to hold an inquiry.
This will help ensure the functioning is smooth. Most importantly, the RBI has
to verify that the banks implement the awards granted by the Ombudsman. In the
absence of this, people are not likely to have faith in the scheme. In states
like Kerala where a lot of cooperative banks are working, the jurisdiction of
the ombudsmen needs to be expanded to cooperative banks.
The effort initiated by the Reserve Bank of India to protect citizens and
provide them with a dignified quality of service by holding the banks
accountable is truly commendable. Under the ombudsman system, one does not an
attorney to begin the process. This is what makes the system accessible to the
poor and simple for all.
However, for these efforts to be utilized to the fullest extent, awareness is
required. If people are uneducated about the procedure of grievance redressal,
and the grounds on which they can hold the banks liable, they will feel
alienated from the system and will not approach it. The awareness has to reach
the grass-root level, which will require a combined effort from the RBI and the
Central Government of India to institute specific policies in the banking
- I.P. Massey, Administrative Law, Eastern Book Company (7th Ed.)
- Durga Hotel Complex v. Reserve Bank of India, (2007) 5 SCC 120)
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2018) accessed 10 May 2020
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Journal, 2020) accessed 16 May 2020
- Athena Energy Ventures Pvt. Ltd. vs .Andhra BankAIR2019Delhi165
- Corporate Bank vs. Navin ShahAIR 2000 SC 761
- Saleem S, and Borate N, 'Is Banking Ombudsman Consumer-Friendly?' (Livemint,
2019) accessed 8 May 2020
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Comparative Study Of Pakistan, India, UK And USA) (2013) accessed 23 May
- Ahmad F, Supra, Note 5
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scheme: Myth or reality. International Journal of Research Studies in
- Ahmad F, Supra Note 5