Banking Ombudsman Scheme Set to Fail (Part 2)
(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
Chakrarty 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
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
