Compliance to compassion: A cultural shift at India's financial regulator

A cultural shift for India's financial regulator - from rule-based monitor to human-centred facilitator

It has been a different new year for the banking community this year. Typically, after closing the third quarter of a financial year on December 31 working late, bankers have a light day on January 1. For many, the day starts with the speech of the managing director (MD). It could be at an open house held at the bank’s headquarters or a webinar — attended by offices across states — or a long message from the MD which typically hits the email box well before the day starts.

 

Last week, on January 1, bankers were busy launching a nationwide campaign to clear all pending customer grievances under the Reserve Bank of India’s (RBI’s) Integrated Ombudsman Scheme.

 

As a prelude to this, on December 29, at 10 am, Sonali Sen Gupta, an RBI executive director overseeing the consumer education and protection department, addressed the executive directors of all banks over a video call. Her interaction, which lasted for about half an hour, focused on clearing all pending grievances within 30 days.

 

At least 920,000 such cases have been pending. They are not related to money alone. The grievances vary from delay in clearing cheques to misbehaviour of a branch manager, and the absence of a ramp at the entrance of a branch inconveniencing senior citizens’ movements.

 

Here are a couple of examples of customer grievances:

 

Seventy-year-old Sita Devi (name changed) visited one of the branches of a large bank in Lucknow in September 2024. She wanted to make a fixed deposit of ~10 lakh. The branch manager and an agent of an insurance company, sitting at the branch, convinced her to sign documents of insurance policy and sold one with a premium of ~10 lakh every year for five years. It would mature after 10 years — five years after the last premium is paid. She realised her mistake after one year when her grandson told her about the scheme.

 

The bank declined to reverse as the insurance company argued it had the proof the terms and conditions were briefed properly.

 

Her grandson took the issue to the banking ombudsman. The bank and the insurance company had no choice but to scrap the policy and return the money to Sita Devi, with interest, as the insurance product sold was not only beyond her income range but also not suitable for her age group.

 

Shyam Kundu (name changed), 57, lost ~1 lakh in fraud. The amount was transferred to someone else’s account at another bank. The aggrieved customer made too many visits to the branch of his bank in a Kolkata suburb but could not get his money back.

 

The banking ombudsman’s office found that both the remitter bank (where fraud occurred) and recipient bank had many procedural lapses. Ultimately, Kundu got back his money — paid by the two banks in a 50:50 ratio.

 

The RBI has rolled out a two-month nationwide campaign to clear all pending customer grievances under its Integrated Ombudsman Scheme. The initiative, overseen by RBI Governor Sanjay Malhotra, calls upon all ombudsman offices to work on “war footing” and resolve complaints pending for more than 30 days.

 

Malhotra, who has been continuously emphasising that the RBI’s mandate is to serve citizens before institutions, explains the philosophy behind this campaign: “We must act for those we exist to protect.” His statement reflects a broader shift in the regulatory mindset, moving from a focus on compliance to a commitment to consumer excellence.

 

The special campaign, running from January 1 to February 28, seeks to reduce complaint backlogs and improve the speed and quality of resolutions. The focus areas include clearing all complaints pending for over 30 days, ensuring faster and more consistent response from regulated entities, enhancing accountability and customer-centric practices across financial institutions and building efficiency within the RBI’s ombudsman framework for real-time redress of complaints.

 

This initiative follows a steady increase in customer grievances reaching the RBI. Going by the latest ombudsman annual report (FY25), complaints rose by 13.55 per cent — 1,334,244 in FY25 from 1,175,075 in FY24.

 

The surge was led by disputes related to loans, credit cards, and mobile banking. Issues tied to loans and advances formed the highest share (29.25 per cent), followed by credit card complaints (20.04 per cent) and mobile or digital banking issues (16.86 per cent).

 

Among the regulated entities in the financial sector, banks accounted for 81.53 per cent of complaints, followed by non-banking financial companies (NBFCs) at 14.8 per cent. The rise tells the story of growing consumer frustration with service quality and delay in resolving issues, even as digital banking is making rapid strides in everyday transactions.

 

Among banks, the share of complaints received against private-sector banks was the highest — rising from 34.39 per cent in FY24 to 37.53 per cent in FY25. However, the share of complaints received against public-sector banks, which was the highest in FY24, declined from 38.32 per cent to 34.80 per cent.

 

The Banking Ombudsman Scheme covers commercial banks, regional rural banks, scheduled primary (urban) cooperative banks, and non-scheduled primary (urban) cooperative banks with deposits of at least ~50 crore; deposit-taking NBFCs (excluding housing finance companies) which have a customer interface and assets of at least ~100 crore; entities operating in the payments system; and credit information companies.

 

Launched in 2006, the scheme originally aimed at providing a quick, fair, and cost-free platform for addressing customer grievances against banks. Its success laid the foundation for a broader and more unified system. In 2021, sector-specific ombudsman schemes — covering banks, NBFCs, and payment service providers — were merged into the Integrated Ombudsman Scheme.

 

It allows individuals to file complaints at a single platform — the Complaint Management System (CMS).

 

Customers can lodge grievances related to excessive bank charges, failed ATM or UPI transactions, delays in fund transfers, non-refund of charges, unauthorised debits, and so on. Once a complaint is filed, a unique reference number is generated to help the user track progress. If the bank’s response is unsatisfactory or delayed, the case escalates automatically to the ombudsman for direct intervention.

 

The ombudsman’s role is that of a mediator and adjudicator, helping customers get justice without legal expense or delay. If the complainant remains dissatisfied, they still retain the right to approach other legal or judicial forums.

 

In recent years, several recurring consumer pain points have drawn the RBI’s attention, especially those related to settlement of claims for deceased account holders. The RBI has issued comprehensive guidelines to streamline settlements where there are no disputes among heirs. Banks can now release undisputed amounts even without a probated will, enabling families to access funds faster and avoid prolonged legal complications.

 

These reforms align with the RBI’s broader objective of financial inclusion — making banking accessible, secure, and sensitive to the needs of every section of society.

 

The RBI also plans to identify banks with persistently high volumes of valid complaints and impose penalties. This “naming and shaming” measure, earlier tested on a smaller scale, is now being expanded to drive behavioural change among financial institutions. The regulator intends to publish comparative rankings of banks’ responsiveness and customer satisfaction scores to encourage competition on service quality, not just profitability.

 

This renewed push for consumer focus traces back to the Kanungo Committee — chaired by former Deputy Governor B P Kanungo — set up in 2021 to review and strengthen customer service standards across banks and NBFCs. The committee made several key recommendations on fair treatment of customers, risk-based categorisation, simplified charges, and special provisions for senior citizens and differently abled customers.

 

While some measures were implemented promptly, the committee’s vision of a more empathetic and efficient system remained only partially realised. The rise in escalated grievances over the past few years has underscored the urgency of enforcing these standards comprehensively. The current RBI campaign appears to be a continuation of this unfinished agenda, with stronger implementation mechanisms and stricter performance metrics.

 

In addition to compliance, the RBI has revised its Citizens’ Charter, setting clearer service benchmarks for both itself and regulated entities. The revamped charter not only improves transparency but also sets measurable outcomes for grievance handling. Once the backlog is cleared, RBI ombudsman offices might transition to a “real-time” redress model, resolving complaints as they arise rather than allowing delays.

 

If successfully executed, this campaign could redefine the RBI’s relationship with consumers – signalling a cultural shift, moving from a rules-based monitor to a human-centred facilitator.

 

The writer, a Consulting Editor of Business Standard, is an author and senior advisor to Jana Small Finance Bank Ltd. His latest book: Roller Coaster: An Affair with Banking. To read his previous columns, log on to www.bankerstrust.in

 

X: @TamalBandyo