Regulated entities should reorient their grievance redress framework to support the Internal Ombudsman (IO) mechanism to ensure smooth functioning of the overall internal grievance redress process, according to RBI Deputy Governor Swaminathan J. 

This observation comes in the backdrop of an ever-rising trend of complaints against these entities (banks, non-bank system participants, non-banking financial companies and Credit Information Companies) under the alternate grievance redress mechanism of the Reserve Bank of India (RBI), he said.

“The RBI often observed that the regulated entities (REs) are materially compliant with the letter of the regulations on Internal Ombudsman, but the expected outcome of the scheme remains below potential. This manifests in the ever-rising trend of complaints against the regulated entities under alternate grievance redress mechanism of the Reserve Bank. Many of these complaints escalated to the RBI Ombudsman could have very well been resolved by the regulated entity itself,” said Swaminathan in his address at a recent Conference of IOs.

The Deputy Governor noted that on occasions, the efficacy of the IO mechanism has been called into question, particularly when decisions taken by regulated entities are overturned by the RBI Ombudsman or the Appellate Authority.

“Such instances raise concerns about the efficacy of the Internal Ombudsman mechanism, especially the independence of the Internal Ombudsman,” he said.

The Deputy Governor said REs must appreciate that a well-functioning IO mechanism is beneficial for all stakeholders.

Apart from reducing the hassles of customers needing to approach alternate fora, it safeguards the RE from reputation risk by reducing the chances of rejections of genuine grievances being subsequently overturned by alternate grievance redressal for a such as the RBI Ombudsman.

Swaminathan urged the IOs to adopt the mindset of an independent impartial observer and decision maker while adjudicating complaints. 

“This entails cultivating a culture that prioritizes impartiality and objectivity in evaluating the merits of each complaint.

“Moreover, recording a ‘reasoned decision’ by clearly and transparently articulating the rationale behind the resolution is crucial since it instils confidence in the customer,” he said.

The Deputy Governor observed that IOs should objectively identify instances where policies have been misconstrued or misapplied and provide feedback that not only points out errors but also suggests constructive solutions.

He emphasised that IOs should suggest ways for qualitative improvement in systems and procedures, thereby becoming partner in the continuous improvement of the regulated entity’s practices, fostering a culture of responsiveness and excellence in customer service.

IOs, on a periodical basis, should proactively provide their inputs on the patterns of complaints received, and guide the regulated entity in taking remedial measures to address recurring complaints.

“At times there is a perception that the Internal Ombudsman, acting independently to address customer grievances, could introduce complexities or delays into the streamlined functioning of the business.

“As a result, some entities do not escalate the complaints to IO thereby making a sub-optimal use of the mechanism,” Swaminathan said.

However, it is important to recognize that the role of the IO is not intended to impede but rather to ensure fairness, transparency, and adherence to regulatory standards.