1.1 The Banking Ombudsman Scheme, 1995 was notified by RBI on June 14, 1995 in terms of the powers conferred on the Bank by Section 35A of the Banking Regulation Act, 1949 (10 of 1949) to provide for a system of redressal of grievances against banks. The Scheme sought to establish a system of expeditious and inexpensive resolution of customer complaints. The Scheme is in operation since 1995 and was revised during the year 2002. The Scheme is being executed by Banking Ombudsmen appointed by RBI at 15 centres covering the entire country.

2.1 The word ‘Ombudsman’ in general means a ‘grievance man’, a public official who is appointed to investigate complaints against the administration. He is to intervene for the ordinary citizen in his dealings with the complex machinery of the establishment.

2.2 In India, any person whose grievance against a bank is not resolved to his satisfaction by that bank within a period of two months can approach the Banking Ombudsman if his complaint pertains to any of the matters specified in the Scheme. Banking Ombudsmen have been authorized to look into complaints concerning (a) deficiency in banking service (b) sanction of loans and advances as they relate to non-observance of the Reserve Bank 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 the Reserve Bank as may be specified for this purpose, from time to time, and (c) such other matters as may be specified by the Reserve Bank.

2.3 The Scheme envisages expeditious and satisfactory disposal of customer complaints in a time bound manner. The Banking Ombudsman on receipt of any complaint endeavours to promote a settlement of the complaint by agreement between the complainant and the bank named in the complaint through conciliation or mediation. For the purpose of promoting a settlement of the complaint, the Banking Ombudsman has been allowed to follow such procedures as he may consider appropriate and he is not bound by any legal rule of evidence. If a complaint is not settled by agreement within a period of one month from the date of receipt of the complaint or such further period as the Banking Ombudsman may consider necessary, he may pass an Award after affording the parties reasonable opportunity to present their case. He shall be guided by the evidence placed before him by the parties, the principles of banking law and practice, directions, instructions and guidelines issued by the Reserve Bank from time to time and such other factors, which in his opinion are necessary in the interest of justice.

2.3 The revised Banking Ombudsman Scheme (BOS) 2002 came into effect on 14^th June 2002. The BOS 2002 additionally provides for the institution of a "Review Authority" to review the Banking Ombudsman’s Award, when warranted. A bank against whom an Award has been passed, may with the approval of its Chief Executive, file an application to the Deputy Governor-in-charge of Rural Planning and Credit Department of Reserve Bank of India to seek a review of the Award. The bank can request for such a review only when the Award appears to be patently in conflict with the Bank’s instructions and/or the law and practice relating to banking. The Banking Ombudsman has also been authorised to function as an Arbitrator on reference to him of disputes either between banks and their customers or between banks. The value of the subject matter of individual disputes under arbitration will not exceed Rupees Ten Lakhs.

3.1 The Banking Ombudsman Scheme, 2002 covers all the Regional Rural Banks in addition to all Commercial Banks and Scheduled Primary Co-operative Banks, which were already covered by earlier Banking Ombudsman Scheme, 1995. The grounds of complaints that can be entertained by the Banking Ombudsmen have been enumerated in Clause 12 of the Banking Ombudsman Scheme 2002.

4.1 The Banking Ombudsman Scheme has been operationalised by Reserve Bank of India by establishing Banking Ombudsman Offices at 15 centres all over the country. The names, addresses and area of operation of the Banking Ombudsman have been given as an annexure to the Report. RBI has the responsibility for framing the guidelines for operationalising the Scheme. It also supervises the running of the Scheme and administrative arrangements, budget and expenditure of the Banking Ombudsman Offices.

5.1 The performance of the Banking Ombudsmen has been analysed on the aspects such as: the quantum of complaints handled by them, the timeliness in handling the issues, and appropriateness of the decisions of the Banking Ombudsmen.

5.2 More than 5000 complaints are received by the Banking Ombudsmen every year. The number of complaints received by the BO offices has been steadily increasing since 1999-2000. The number of complaints received during 2000-01, 2001-02 and 2002-03 stood at 5803, 5907 and 5399 respectively while there was a sharp rise during the year 2003-04 at 8246. Details are as given below:

(* Includes only the complaints received during the year and excludes the number of pending complaints).

5.3. The Banking Ombudsmen Offices could dispose of around 70% of the maintainable complaints on an annual basis. Despite increase in the number of complaints, the percentage of maintainable complaints disposed off increased steadily except during 2002-03 when it dipped marginally. However, around 50% of the pending complaints remained pending for more than 2 months. During the year 2003-04, 37% of the complaints were pending for more than 3 months. Details are as given below.

*Includes previous year’s pending complaints.

**For the year 2003-04, the details of pending have been furnished separately and are as follow:

5.4 As already described, the Ombudsmen disposed of complaints either by settlement or by issuing an Award. During the period 1999-2000 to 2003-04, the percentage of disposal of complaints by settlement to total maintainable complaints disposed of was around 98% clearly indicating the effectiveness of the Banking Ombudsmen in disposal of the cases. During the period above, only 338 awards were issued which formed 2% of the total 16261 maintainable complaints disposed of. Details are as given below.

The fact that the BO could dispose of 98% of the complaints by settlement between the complainant and the concerned banks indicates that the BO takes appropriate decisions taking into consideration all the relevant and extant legal and banking instructions. Moreover, only a few review cases do come up for the consideration of DG (RPCD). (In respect of some of the awards, where there was apparent contradictions/inaccuracies vis-à-vis the existing instructions/banking policies, banks were allowed by RBI to contest the same in a Court of law, on getting specific request from them (under the provisions of the Banking Ombudsman Scheme 1995).

6.1 The maximum number of complaints dealt with during the period under review pertained to complaints regarding deposit accounts, deficiency in servicing of loans and advances and delay in collection of cheques/bills, etc, besides the miscellaneous complaints. The details are as follows:

*No. of complaints includes previous year’s pending complaints as indicated in brackets.

6.2 The majority of the complaints pertain to the Nationalized Banks followed by the State Bank Group, constituting around 80% of the complaints received. The RRBs were brought under the purview of the Banking Ombudsman from the year 2002 as per BOS 2002 and the number of complaints against RRBs increased from 33 during the year 2002-2003 to 232 during the year under review. Increasing number of complaints against RRBs also indicate the penetration of the Scheme in rural areas.

(** Includes 232 complaints against RRBs).

7.1 The Banking Ombudsman Scheme 2002 entrusted the Banking Ombudsman to deal with the cases of disputes between customer and banks and between banks, involving an amount up to Rs.10 lakhs. During the year 2003-04, the Banking Ombudsmen handled 34 such cases of inter-bank disputes and 19 of those cases were pending disposal as at the close of the year. Most of the arbitration cases were handled at Ahmedabad (15) and Mumbai (7) BO offices. In order to increase the number of arbitration cases handled by the BOs, a circular by former DG, Shri Vepa Kamesam was issued to all the participant banks in September 2003 to take advantage of the cost effective inter-bank dispute settlement provision available in the BOS 2002.

7.2 The costs of the Scheme include the revenue expenditure and capital expenditure incurred in running the BO offices. The revenue expenditure includes the establishment items like salary and allowances of the staff attached to BO offices and non-establishment items such as rent, taxes, insurance, law charges, postage and telegram charges, printing and stationery expenses, publicity expenses, depreciation and other miscellaneous items. The capital expenditure items include the furniture, electrical installations, computers/related equipments, telecommunication equipments and motor vehicle. The total annual costs of running the 15 BO offices varied around Rs 6 crore and since the year 2001-02 the annual cost has been increasing steadily. The details, including the cost per complaint, have been given below.

7.3 As provided in the Scheme, the amount spent is being recovered from participating banks in proportion to the working funds of these banks as at the end of the preceding financial year. This practice is in line with the international practices being adopted by many Ombudsman Schemes in the world.