Addressing grievances

RBI should focus more on spreading financial awareness

Since its inception, the Integrated Ombudsman Scheme of the Reserve Bank of India (RBI) has been instrumental in enhancing consumer protection and encouraging regulated entities (REs) to adopt safe business practices and resolve customer grievances. The creation of a single window for the resolution of complaints against REs like banks, non-banking financial companies (NBFCs), payments system participants, and credit information companies has helped reduce complexities and facilitate the speedy resolution of complaints. In this regard, the RBI’s recent annual report on the ombudsman scheme for 2022-23 does well to evaluate the performance of the scheme.

According to the report, the number of complaints received by the ombudsman offices registered a 68.24 per cent increase in 2022-23 over the preceding year. The increase can be attributed to public awareness campaigns, including the month-long nationwide intensive awareness programme, the “ombudsman speak” events across the country, “RBI Kehta Hai” advertisement campaigns, and a simplified process of lodging complaints. The increase is much larger than what was observed in previous years. Complaints are also geographically dispersed, with the majority of those being received from metropolitan cities, followed by urban and semi-urban centres. However, the data shows that complaints received from urban, semi-urban, and rural areas have been increasing over time, while those from metropolitan regions have been decreasing, indicating that the central bank’s efforts have been able to address institutional abuses or ill-informed customer decisions arising from the asymmetry of information between financial institutions and consumers.

The average turnaround time for disposing of complaints has also improved continuously from 95 days in FY20 to 33 days in FY23. The average cost of handling a complaint has also been reduced, thereby making the ombudsman scheme more efficient. Most complaints have been resolved through mutual settlement. With a healthy disposal rate of 97.99 per cent during the year, there was a significant decline in the number of complaints pending beyond 30 days, from 0.26 per cent in FY22 to 0.04 per cent in FY23. The report also identifies the underlying deficiencies in customer service. Incidents of fraudulent digital transactions, delays in the reversal of failed transactions, pension-related issues faced by senior citizens, lack of proper communication from REs regarding terms and conditions  for loans, and mis-selling of financial products have been cited as some of the most common complaints registered with the 22 ombudsman offices across the country. Those relating to mobile/electronic banking were the highest contributor to the total number of complaints received against banks as well as non-bank payments system participants, while complaints relating to non-adherence to the Fair Practices Code were the highest for NBFCs. Complaints against banks form the largest portion, accounting for 83.78 per cent of the total, with public-sector banks having the biggest share.

In India, a large section of the population still lacks access to basic financial services from the formal financial sector and, hence, financial literacy is considered an important adjunct of promoting financial inclusion, consumer protection, and ultimately financial stability. In this regard, while the Banking Ombudsman Scheme seems to be working well, the banking regulator should focus more on spreading financial awareness to improve the understanding of the general public, which would lead to informed decisions and reduce the scope of financial disputes.