(This is a continuation of part 1)

Dr Chakravarti continued his speech in Vancouver making some significant observations on the need for Ombudsman in financial industry. These have significant impact on the Indian system of Banking Ombudsman also.

Speaking on the role of an Ombudsman, Dr Chakravarty said

“The role of the Ombudsmen adjudicating financial consumer disputes is onerous and the recent upheavals in the market place have only heightened the consumers’ expectations. The Ombudsmen, by definition, deal with individual grievances about which the common person is agitated. “

He also stated that

“The existence of a legal framework is a must for consumer protection. They (Ombudsman) cannot substitute effective legal and regulatory systems.”

Speaking about the Indian system, Mr Chakravarty said

“The Banking Ombudsman Scheme has been in existence for over fifteen years and is cost free for access by the common person. The Banking Ombudsman Scheme (BOS) is fully funded and managed by India’s central bank i.e. the Reserve Bank of India. As of now, bank customers can lodge a complaint with any of the fifteen Offices of the Banking Ombudsman situated across the country, on twenty seven different grounds of deficiency in banking services. These grounds of complaint cover all the delivery channels as also customer touch points. “

In conclusion he stated

“There are sections of financial consumers who always have the highest sense of protection and there are the vulnerable sections of the society who feel left out. We, therefore, have to move to an order where the market forces, competition, effective regulation and a vibrant Ombudsman scheme all co-exist and handle matters concerning financial consumers’ protection in a harmonized way.”

Having taken note of what Dr Chakravarty has said in this International Conference and the customer friendly reports such as the Damodaran Committee report etc, from RBI, let us now proceed to see from the angle of a Bank Customer the direction in which the Indian Banking Ombudsman Scheme is taking. My observations are based on my personal experience with the Banking Ombudsman in Bangalore and several RTI applications made in this regard besides direct interaction with some RBI officials.

The Indian Banking Ombudsman Scheme came into existence in 1995 but was comprehensively reviewed as “Banking Ombudsman Scheme 2006” It was amended in 2007 and again amended in 2009.

A comparision of amendments passed in 2007 and 2009 in respect of two principal clauses namely, Rejection and Appeal are provided below for quick reference. Let’s analyze the amendments and their impact on the scheme.

Comparison of Different Versions of  the BO Scheme

As applicable from January1 2006 Amended May 24 2007 Amended Feb 3 2009
13. REJECTION OF THE COMPLAINT

(1) The Banking Ombudsman may reject a complaint at any stage if it appears to him that the complaint made is;(a) frivolous, vexatious, malafide; or
(b) without any sufficient cause; or
(c) that it is not pursued by the complainant with reasonable diligence; or
(d) in the opinion of the Banking Ombudsman there is no loss or damage or inconvenience caused to the complainant; or
(e) beyond the pecuniary jurisdiction of Banking Ombudsman prescribed under clause 12(5).(2) The Banking Ombudsman may reject a complaint at any stage if after consideration of the complaint and evidence produced before him the Banking Ombudsman is of the opinion that the nature of the complaint requires consideration of elaborate documentary and oral evidence and the proceedings before the Banking Ombudsman are not appropriate for adjudication of such complaint. The decision of the Banking Ombudsman in this regard shall be final and binding on the complainant and the bank.

13. REJECTION OF THE COMPLAINT

The Banking Ombudsman may reject a complaint at any stage if it appears to him that the complaint made is;

(a) not on the grounds of complaint referred to in clause 8 or
(b) beyond the pecuniary jurisdiction of Banking Ombudsman prescribed under clause 12 (5) or
(c) frivolous, vexatious, malafide; or
(d) without any sufficient cause; or
(e) that it is not pursued by the complainant with reasonable diligence; or
(f) in the opinion of the Banking Ombudsman there is no loss or damage or inconvenience caused to the complainant; or

(g) requiring consideration of elaborate documentary and oral evidence and the proceedings before the Banking Ombudsman are not appropriate for adjudication of such complaint. “

13.REJECTION OF THE COMPLAINT

The Banking Ombudsman may reject a complaint at any stage if it appears to him that the complaint made is;(a) not on the grounds of complaint referred to in clause 8 or otherwise not in accordance with sub clause (3) of clause 9; or
(b) beyond the pecuniary jurisdiction of Banking Ombudsman prescribed under clause 12 (5) and 12 (6) or
(c) requiring consideration of elaborate documentary and oral evidence and the proceedings before the Banking Ombudsman are not appropriate for adjudication of such complaint; or
(d) without any sufficient cause; or
(e) that it is not pursued by the complainant with reasonable diligence; or
(f) in the opinion of the Banking Ombudsman there is no loss or damage or inconvenience caused to the complainant.

14. APPEAL BEFORE THE APPELLATE AUTHORITY:(1) Any person aggrieved by the Award may, within 45 days of the date of receipt of the Award, prefer an appeal against the Award before the Appellate
Authority;..

14. APPEAL BEFORE THE APPELLATE AUTHORITY:

“(1) Any person aggrieved by an Award under clause 12 or rejection of a complaint for the reasons referred to in

sub. clauses (c) to (g) of clause 13, may within 30 days of the date of receipt of communication of Award or rejection of complaint, prefer an appeal before the Appellate Authority;

..

14. APPEAL BEFORE THE APPELLATE AUTHORITY: Any person aggrieved by an Award under clause 12 or rejection of a complaint for the reasons referred to in sub clauses (d) to (f) of clause 13, may within 30 days of the date of receipt of communication of Award or rejection of complaint, prefer an appeal before the Appellate Authority;

It may be observed that  between 2007 and 2009 a new ground for rejection  namely “requiring consideration of elaborate documentary and oral evidence and the proceedings before the Banking Ombudsman are not appropriate for adjudication of such complaint. ” was renumbered from (g) to (c). Normally this should have been of no consequence. However due to the subtle change made in clause 14, the change in clause 13 assumes an important meaning.

In 2006, an appeal could be preferred on any ground of rejection including rejection on the basis of “Requiring consideration of elaborate evidence”. This continued in 2007 also. However in 2009 this was specifically exempted from the eligibility for appeal.

This change has taken away whatever credibility that the Banking Ombudsman Scheme posessed. Now it is reduced to a scheme which can be easily manipulated by Banks against the interest of the ordinary consumer. It is for this reason that I am unable to agree with Dr K.C.Chakravarty that RBI is doing enough in the interest of the Customers and reiterate that RBI talks in terms of directions but does not ensure that its directions are actually  followed by the Banks.

While one can agree that the Banking Ombudsman is not capable of considering “Elaborate Evidence”, it is reasonable to expect that he should consider “Reasonable Evidence”.

The BO scheme of 2009 has now made it convenient for Ombudsmen to reject any application and assign it the reason of “Elaborate Evidence” and also shut off the complainant from making an appeal. The complaint will therefore die at the first stage itself.

This situation enables Banks to wield an unfair influence with the local Ombudsman and ensure that no complaint is heard reasonably. There are only a few Banks in each location but millions of customers. It is easy for Bank’s nodal officers to befriend the Ombudsman and obtain unfair decisions in their favour.

I am sure that some would jump up at my statement and say that we need to trust the appointed Ombudsman to do justice and not pass unsubstantiated comments that he can be anti-customer. It is in this context that Dr Chakravarty’s admission that many question his pro-customer attitude. While there is Dr Chakravarty and more like him in the RBI who are honestly pro-customer, there are many who are not.

Amongst the Banking Ombudsmen themselves there is no uniformity of decisions. There are a few instances of Phishing and many instances of ATM frauds which have been decided in favour of the customers. But there are an equal or more number of cases where the decisions have been in favour of the Banks.

I would like to quote the facts of one actual case in Bangalore to substantiate my point of why the BO Scheme of 2009 can be easily misused by some Banking Ombudsmen to deny justice to victims of Bank’s negligence.

The facts of the case are as follows:

One Mr S Nagaraja, a senior citizen and customer of Bank of India of one of the Bangalore branches suddenly found in his passbook one day that Rs 40700/- had been withdrawn through ATM from his SB account through an ATM belonging to Canara Bank in Bangalore.  He told the branch manager that he has not lost his ATM card and has not used the card for the withdrawals. He also filed a Police complaint. When there was no response from the Bank, a complaint was made to the Zonal Manager of the Bank as the nodal officer under the Banking Ombudsman scheme. The Bank did not bother to send any reply and the Customer filed his complaint under the BO Scheme at Bangalore. The BO took his time and subsequently rejected the complaint under the clause “Elaborate Evidence Required” and also confirmed in his reply that “No Appeal is Possible”.

The reply which was signed by one of the junior officers on behalf of the Ombudsman and not by Mr Palanisamy himself.

During the process of consideration of the application, despite specific requests the Ombudsman at Bangalore (Mr S Palanisamy) did not provide an opportunity for the complainant to either present his case personally to the Ombudsman or he organized a joint meeting with the Bank. Instead, he relied on an e-mail from Bank of India that “Transaction was successful” and another e-mail from Canara Bank that “There was no CCTV at the particular ATM and hence CCTV footage cannot be provided”. The copy of the application made to the Ombudsman is available here. The Ombudsman sent a reply stating that “Elaborate Evidence needs to be considered” and also went on to state that no appeal was possible since he was rejecting the complaint under this ground.

Thus the BO failed to consider the simple evidence that the Customer was in posession of the ATM cards and the Bank was not in possession of the CCTV footage which they were expected to have and relied on some unsigned pieces of paper presented by the Bank as transaction records and rejected the complaint.

This is a classic case of how the Ombudsman becomes unreliable since he has disposed off the case almost finally.

The complainant has however raised an objection that the decision was malafied and submitted an appeal , The appeal was filed on August 13th and response is still awaited.

Now it is the turn of Dr Chakravarty to let the public know what is the remedy for the customers in such a situation.

The Bangalore Ombudsman was arbitrary in his decision since several other instances of similar nature in which the Ombudsmen at different places had taken a view in favour of the customer had been brought to his notice. Now there is the guidance from the Damodaran Committee report and also the RBI release on the Omudsman conference which which clearly state that Customer should have Zero Liability for such frauds and the onus of presenting any evidence is also on the Bank.

If the decision of Mr Palanisamy in the case of S.Nagaraja Vs Bank of India/Canara Bank is not corrected, it will be very clear that Banks can collude with the local Ombundsman and take such arbitrary decisions. In almost all cases the defence of “Elaborate Evidence” can be presented and the Central administration of RBI in Mumbai will never be able to know how the system is being administered by the respective Ombudsmen in different locations. This will also lead to corruption in due course.

Though RBI may say that the complaint can be taken to the legal circles, we all know that many of the losses are of small value of say less than Rs 50,000/- and it is extremely inconvenient and uneconomical to proceed legally to recover the money. We also know that Banks would be happy if the dispute is taken up through legal channels so that they can use all their muscle to delay the decision as long as possible.

In fact when the case of Mr Nagaraja is taken to the legal circles, the malicious nature of the Ombudsman’s decision may become a point of discussion as an evidence of the harassment inflicted on the customer  by the respective Bank. The Ombudsman may even be summoned as a witness or as a respondent to explain the background  of his decision. If this happens, the respectability of the institution will be coming down substantially.

It is therefore clear that the amendment of the Banking Ombudsman Scheme in 2009 limiting the reasons for appeal  has struck a fatal blow on the Ombudsman Scheme and it is necessary that the scheme is further amended to make all decisions of the regional ombudsmen appealable irrespective of the reason stated by him for rejection. If this is not done the scheme is likely to be rejected by customers and will fadeout as a failed experiment.

I request Dr Chakravarty as well as the Governor of Reserve Bank of India take up this request and make necessary amendments at the earliest.

Naavi

September 24, 2011

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