Banking Ombudsman

Why is it in News?

Complaints to RBI Ombudsman have increased by 25% in the financial year 2018.

About Banking Ombudsman:

  • It is a quasi-judicial body that was made under Section 35A of Banking Regulation Act, 1949. It was later streamlined by the Banking Ombudsman Scheme, 2006.
  • Its main function is to plug the deficiency in the banking sector and provide customer with a platform to deal with their grievances.
  • The service provided by Ombudsman is free of cost.

Jurisdiction of Banking Ombudsman:

  • All Scheduled Commercial Banks
  • Regional Rural Banks
  • Urban Cooperative Banks
  • Deposit taking Non Banking Financial Companies (NBFCs)
  • Non deposit taking NBFCs with assets more than Rs. 100 crore.

Who can be appointed as Ombudsman?

  • The Banking Ombudsman actually is a senior official (in the rank of General Manager or Chief General Manager) appointed by the RBI to redress customer complaints against pitfalls in the stipulated banking services covered by the Banking Ombudsman Scheme.
  • The duration of the office is 3 years.
  • He is eligible for reappointment.

When can Customer Approach the Ombudsman?

  • The RBI has listed around 25 areas where the customers can raise complaints with the Banking Ombudsman. Some of them are non-payment/ inordinate delay in the payment or collection of cheques, drafts, bills etc.
  • The customer can approach the Ombudsman only if the complaints in the notified areas by RBI is not taken seriously by the banks like:
  • oIf the issue is not sorted by banks within 30 days.
  • oIf the customer is not satisfied with the bank action on the issue concerned.
  • oIf the bank rejects the complaint outrightly etc.
  • The decision of Ombudsman is not final and binding as the aggrieved party can approach tribunals if he is not satisfied with the decision of the Ombudsman.
  • The service provided by the Ombudsman is free of cost.
  • The Banking Ombudsman can consider complaints from Non-Resident Indians having an account in India.

Non-Banking Financial Companies (NBFC):

  • A NBFC is a company registered under the Companies Act, 1956. It engages in the business of:
  • oLoans and advances
  • oAcquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature
  • oLeasing, hire-purchase, insurance business, chit business, etc.
  • It, however, does not include any institution whose principal business is that of:
  • oagriculture activity
  • oindustrial activity
  • opurchase or sale of any goods (other than securities)
  • oproviding any services and sale/purchase/construction of immovable property
  • NBFC does not go for Demand Deposits and they don’t form the part of payment & settlement system.
  • Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
  • All NBFCs are not regulated by RBI; different NBFCs are regulated by different regulators.
  • NBFCs with assets greater than Rs. 500 crore are called ‘Systemically Important NBFCs’. IL&FS is a systemically important NBFC.
  • At present more than 1200 NBFCs are operating in India.
  • NBFCs are also called as ‘Shadow Banking System’.

Source: TH, Livemint