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Internal Ombudsman for Regulated Entities

Reserve Bank of India (RBI) has issued directions on Internal Ombudsman for regulated entities, which integrates and updates the erstwhile Internal Ombudsman schemes issued by RBI for banks, Non-Banking Financial Companies (NBFCs), Non-bank System Participants (NBSPs) and Credit Information Companies (CICs).

To whom shall the directions on Internal Ombudsman apply?

The directions on Internal Ombudsman (IO) shall apply to –

  • Banks having 10 or more banking outlets in India, whether such bank is incorporated in / outside India.
  • Non-Banking Financial Companies (NBFCs) fulfilling the following criteria –
    • Deposit-taking NBFCs (NBFCs-D) with 10 or more branches.
    • Non-Deposit taking NBFCs (NBFCs-ND) with asset size of ₹5,000 crore and above and having public customer interface.
  • All Non-bank System Participants (NBSPs) with more than one crore Pre-paid Payment Instruments (PPIs) outstanding as on March 31, 2023, or thereafter, even if the number of PPIs outstanding falls below the threshold at a later date.
  • All Credit Information Companies (CICs).

Any regulated entity (RE) reaching the prescribed thresholds would be required to put in place an IO framework within 6 months of reaching the threshold.

Who can be appointed as IO and DIO?

Internal Ombudsman (IO) Deputy Internal Ombudsman (DIO)
RE may appoint more than one IO. RE may appoint one or more DIO, who would assist the IO.
The IO shall either be a retired or serving officer, in the rank equivalent to a General Manager of another bank / Financial Sector Regulatory Body / NBSP / NBFC / CIC, having necessary skills and experience of minimum 7 years of working in areas such as banking, non-banking finance, regulation, supervision, payment and settlement systems, credit information or consumer protection. The DIO shall either be a retired or serving officer, not below the rank of Deputy General Manager of another bank / Financial Sector Regulatory Body / NBSP / NBFC / CIC, having necessary skills and experience of minimum 5 years of working in areas such as banking, non-banking finance, regulation, supervision, payment and settlement systems, credit information or consumer protection.
The IO shall previously not have been employed, nor presently be employed, by the RE or the RE’s related parties.

 
The IO shall not be over 70 years of age before the completion of the tenure. The DIO shall not be over 70 years of age before the completion of the tenure.

Financial Sector Regulatory Body includes Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA).

What is the administrative structure for IO / DIO?

  • The IO shall report to the Competent Authority of the RE administratively, and to the Board of RE functionally. Competent Authority means Executive Director (ED) In-charge of customer service for banks, ED / Managing Director (MD) / Chief Executive Officer (CEO) for NBFCs, MD / CEO for NBSPs, and MD / CEO for CICs.
  • The DIO shall functionally report to the IO, who will be the final authority / decision-making authority while dealing with the complaints. 
  • In the temporary absence of the IO, not exceeding 15 working days, the DIO may function as the IO for the limited purpose of reviewing the rejected complaints. 
  • Prior information shall be provided to RBI in case of temporary absence of the IO exceeds 15 working days, advising inter-alia, details of alternate arrangements being put in place. However, such temporary absence should not exceed 30 days.
  • The Principal Nodal Officer or the Nodal Officer, liaising with the offices of the RBI Ombudsman, shall not act as IO / DIO or vice versa, even during the temporary absence of either.

What shall be the tenure of IO / DIO?

  • The tenure of the IO / DIO shall be a fixed term of not less than 3 years, but not exceeding 5 years.
  • The IO / DIO shall not be eligible for reappointment or for extension of term in the same RE. 
  • The IO / DIO cannot be removed before the completion of his / her contracted term without the explicit approval of RBI. 
  • In case the vacancy arises on account of reasons beyond the control of the RE (such as death, resignation, incapacitation, terminal illness, etc.), the RE shall appoint a new IO / DIO within 3 months from the date of vacancy.
  • The RE shall ensure that there is a minimum overlap of at least one month between the time of demitting of office of the outgoing IO and the incoming IO. 
  • The RE shall undertake the process of fresh appointment at least 3 months before the expiry of the term of the incumbent IO.

Which complaints can be dealt by IO?

The IO shall deal with the complaints that have already been examined by the RE but have been partly or wholly rejected by the RE.

Which complaints shall not be dealt by IO?

The following types of complaints shall not be handled by the IO –

  • Complaints received directly from the complainants or members of the public.
  • Complaints related to corporate frauds, misappropriation etc., except those resulting from deficiency in service, if any, on the part of the RE. 
  • References in the nature of suggestions and commercial decisions of RE. However, service deficiencies in cases falling under ‘commercial decisions’ will be valid complaints for the IO.
  • Complaints / references relating to (i) internal administration, (ii) human resources, or (iii) pay and emoluments of staff in the RE.
  • Complaints which have been decided by or are already pending in other fora such as the Consumer Disputes Redressal Commission, courts, etc.
  • Disputes for which remedy has been provided under Section 18 of the Credit Information Companies (Regulation) Act, 2005.

The IO shall not represent the RE in legal cases before any court or fora or authority.

What is the procedure for Complaint Redress by IO?

  • All complaints that are partly or wholly rejected by the RE’s internal grievance redress mechanism shall be auto-escalated to the IO within 20 days of receipt, for a final decision.
  • The IO and RE shall ensure that the final decision is communicated to the complainant within 30 days from the date of receipt of complaint by the RE.
  • The decision of IO shall be binding on the RE.
  • Where the IO overrules the decision of the RE to reject or partly reject the complaint, the RE can disagree with the decision of the IO only with the approval of the Competent Authority.
  • For complaints that are fully or partly rejected even after examination by the IO, the RE shall necessarily advise the complainant, as part of the reply, that he / she can approach the RBI Ombudsman for redress.


References

Reserve Bank of India. (2023, March 29). 'Master Direction - Reserve Bank of India (Internal Ombudsman for Regulated Entities) Directions, 2023'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12586&Mode=0

Reserve Bank of India. (2023, December 29). 'Press Release - Master Direction - Reserve Bank of India (Internal Ombudsman for Regulated Entities) Directions, 2023'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=57038


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