Ombudsman to get tough with misbehaving banks

 Source :Moneylife Digital Team:May17,2010

The Banking Ombudsman is not in favour of banks appealing against its decisions; threatens to convert one-off cases into all-encompassing class action suits

Despite not being a quasi-judicial body, but a scheme for grievance redressal, the Banking Ombudsman (BO) derives enormous power from its ability to extend a verdict into a full-blown class action suit. The BO, which is an expeditious forum to bank customers for resolution of their complaints, is known to take a tough stand against gross violations of customers’ rights.

Now, the BO has frowned upon banks that consider an appeal against its verdicts. During an interactive session on banking services organised by Moneylife Foundation on Saturday, Kaza Sudhakar, chief general manager, customer services department of the Reserve Bank of India (RBI) vehemently discouraged banks from appealing against a decision given in favour of the customer. If a bank were to do so, the BO would consider extending the particular complaint verdict into a class action suit, applicable to the entire banking fraternity.

Mr Sudhakar said, “We are absolutely not in favour of any appeal by bankers against decisions taken by the BO. It is simply not expected. If the bank appeals, it is a case for a class action suit—as simple as that. If the appeal is not upheld, you are done.”

He cited the example of a particular complaint against State Bank of India (SBI), where repeated complaints from one customer about delay in pension payments forced the RBI to take a tough stand on the matter. The outcome was that the central bank issued a circular across the banking system, directing banks to make good the payments immediately, along with penal interest to the customers. “It was only that one person who persistently knocked on the RBI’s doors. Because the bank appealed against our decision, we had to scale the issue across all banks.” This resulted in benefits to nearly 65 lakh customers in the country. Moneylife was the only media house to reveal the action taken by RBI against banks delaying pension payments. (see here and here).

While the BO has the power to award exemplary damages in extreme cases, it is not a frequent occurrence. Mr Sudhakar pointed out that almost 50% of the complaints with the BO are non-maintainable due to a variety of reasons. Out of the remaining, almost 70% are resolved within one-two months.

Mr Sudhakar also criticised banks for the increasing number of cases where housing loan documents of customers were getting misplaced at the banks’ end. He said, “We are completely sympathetic towards the customer in these cases. This is simply not tolerable, and we will be harsh on such banks. Loss of housing loan documents is like a permanent defect in title of the customer.”

OP Agarwal, BO for the States of Maharashtra and Goa, was also present during the workshop. He also put in some words of caution for the banks. “We strongly urge banks not to keep the complaints pending beyond an acceptable time limit. Around 70% of the complaints with the BO get resolved within one or two months. In some rare cases, redressal takes more than three months.”

Mr Agarwal also pointed out that banks are required to disclose in their annual report details regarding complaints filed against them. This should include the nature of complaint, award against complaints, time taken for reverting back to the customer, etc.