RBI Mandates Auto Transfer of Unresolved Complaints to Internal Ombudsman

Strengthening customer protection in the financial system, the Reserve Bank of India (RBI) has issued new directions on grievance redressal. Under the revised norms, banks and eligible NBFCs must automatically transfer unresolved complaints to their Internal Ombudsman. The move aims to ensure faster resolution, greater accountability, and uniform handling of customer grievances across regulated entities.

Why in News?

The Reserve Bank of India has directed banks and certain NBFCs to automatically escalate partially resolved or rejected complaints to the Internal Ombudsman (IO) and ensure that the final decision is conveyed to customers within 30 days of complaint receipt.

New RBI Directions on Complaint Management

• The RBI has mandated that banks and eligible NBFCs must establish a fully automated Complaint Management System (CMS).
• This system should allow seamless access to the Internal Ombudsman (IO) and Deputy Internal Ombudsman (DIO).
• Any complaint that is not fully resolved at the bank level must be automatically escalated to the IO.
• The regulator clarified that the IO will only examine complaints already reviewed by the bank but either partially resolved or wholly rejected, ensuring an independent internal review mechanism.

Timelines for Review and Resolution

• To ensure timely grievance handling, RBI has prescribed clear timelines.
• For complaints where RBI, NPCI, or card network rules specify timelines, the IO must get at least 10 days for review.
• For all other complaints, a 20-day timeline from the date of receipt applies for IO review.
• Importantly, banks must communicate the final decision to the complainant within 30 days, regardless of the outcome, enhancing predictability and transparency in grievance redressal.

Categorization of Complaints

• Banks are required to classify complaints into three categories within their CMS, fully resolved, partially resolved, and wholly rejected.
• Only partially resolved or rejected complaints will move to the IO.
• RBI has also clarified that the same branch or unit cannot close a complaint, whether resolved or rejected, preventing conflict of interest and ensuring fairness.
• Complaints related to internal corporate frauds that do not affect customers are excluded from IO jurisdiction.

Strengthening Board Level Oversight

• The new framework significantly enhances governance. Customer Service Committees (CSCs) of bank boards are entrusted with oversight responsibilities, including deciding the number of IOs and DIOs.
• Management can overrule an IO’s decision only with approval from a whole-time or executive director.
• All such overruled cases must be placed before the CSC for review, reinforcing accountability at the highest level.

Applicability to Banks and NBFCs

• The norms apply to banks with 10 or more outlets in India as on March 31, 2025.
• For NBFCs, the rules cover deposit-taking NBFCs with 10+ branches and non-deposit-taking NBFCs with assets of ₹5,000 crore or more having a public customer interface.
• Several categories, such as housing finance companies, core investment companies, and NBFCs under insolvency or liquidation, have been excluded.
• Similar guidelines extend to small finance banks, payments banks, prepaid payment issuers, and credit information companies.

About Internal Ombudsman System

• The Internal Ombudsman mechanism was introduced to strengthen internal grievance redressal before customers approach the RBI Ombudsman.
• It acts as an independent check within banks and NBFCs, improving resolution quality and reducing external disputes.
• Such frameworks are crucial for maintaining trust in the financial system.

Key Summary at a Glance

Aspect	Details
Why in News?	RBI mandated auto-escalation of unresolved complaints
Authority	Reserve Bank of India
Key Rule	Partially resolved/rejected complaints to IO
Final Timeline	Decision to customer within 30 days
Coverage	Banks, eligible NBFCs, SFBs, payments banks
Governance	Board-level CSC oversight

Question

Q. Under the new RBI norms, unresolved complaints must be escalated to:

A. RBI Ombudsman directly
B. Banking Ombudsman
C. Internal Ombudsman
D. Consumer Court