Swaminathan J: The vital role of Internal Ombudsman in ensuring
customer-centric financial excellence
Speech by Mr Swaminathan J, Deputy Governor of the Reserve Bank of India, at the
Conference of Internal Ombudsman, Mumbai, 16 January 2024.
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MDs and CEOs of Regulated Entities, Heads of Customer Service, Principal Nodal
Officers, Executive Director, Shri Neeraj Nigam, Reserve Bank Ombudsmen, senior
colleagues from the Reserve Bank and most importantly the key audience of our
conference today, the Internal Ombudsman from Regulated Entities. A very good
morning to all of you.
It is indeed a great pleasure to be here amidst all of you at the 2nd Conference of
Internal Ombudsman. This forum provides an opportunity for exchange of ideas and
thoughts, fostering discussion to enhance the efficacy of Internal Ombudsman
mechanism within the regulated entities.
In my recent interaction with the Chairpersons of Customer Service Committees, Whole
Time Directors in charge of Customer Service Verticals and Principal Nodal Officers, I
had highlighted the significance of investing in the Internal Ombudsman's capabilities
for transparent and fair grievance redressal as it reinforces the trust of customers in the
banking system.
Today, I would like to take the discussion forward, by talking about the pivotal role of
Internal Ombudsman in ensuring effective and impartial resolution of grievances of the
customers of regulated entities as well as being an agent for change.
Role of Internal Ombudsman
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The concept of Internal Ombudsman was introduced almost nine years ago as a forum
for customers to obtain grievance redressal within the regulated entity itself, thereby
obviating the need to approach the RBI Ombudsman.
The 2018 Internal Ombudsman Scheme for banks as well as the subsequent schemes
for other regulated entities mandated escalation to the Internal Ombudsman before
rejection of a customer grievance. Further, to strengthen the independent functioning of
the Internal Ombudsman, these regulations also provided for tenure and compensation
protection of the IO while advising regulated entities to ensure that adequate staff and
infrastructure support is provided to Internal Ombudsman. The recent framework further
enhances the stature of the Internal Ombudsman by providing for functional reporting to
the Board.
In essence, the IO regulations attempt to create an independent apex level functionary
within the regulated entity's internal grievance redressal mechanism, to act as a
custodian of fairness, overseeing the grievance redress process and to maintain
equitable outcomes for all stakeholders.
Indeed, the Office of the Internal Ombudsman in regulated entities can serve as the
focal point for providing independent and unbiased perspective to customer grievance
related decisions made by regulated entities. The Internal Ombudsman is expected to
provide constructive feedback to the regulated entities by analysing the patterns and
identifying the root causes of complaints and suggest policy level changes required at
the level of regulated entities.
However, on occasions, the efficacy of the Internal Ombudsman 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.
Accordingly, I would like to highlight and elaborate upon four key areas for the Internal
Ombudsman to focus upon for establishing a fair and just grievance redressal process.
Later I will also discuss the role of the regulated entities in supporting their Ombudsman
before concluding with a brief insight into the intent of our recently revised framework
for Internal Ombudsman.
Independent Impartial Mindset
Firstly, I would urge Internal Ombudsman 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.
Unbiased constructive feedback
Secondly, offering unbiased and constructive feedback on policy misinterpretations to
regulated entities is essential for fostering a culture of continuous improvement. Internal
Ombudsman 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.
Suggest ways for qualitative improvement in systems and procedures
Thirdly, Internal Ombudsman can also contribute to regulated entities by providing
valuable insights and recommendations for enhancing systems and procedures for
improved efficiency and effectiveness in grievance redressal. In doing so, the Internal
Ombudsman becomes an instrumental partner in the continuous improvement of the
regulated entity's practices, fostering a culture of responsiveness and excellence in
customer service.
Guiding the regulated entities in mitigating the complaints
Finally, Internal Ombudsman, 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. I believe this to be one of the most
crucial aspects of the role of Internal Ombudsman in contributing to a more responsive
and consumer-centric operational framework within the regulated entity.
Role of the Regulated Entities
While I have spoken at length on the role of the Internal Ombudsman, the role played
by the Board and management of regulated entity is also important to ensure the
effectiveness of this function.
It is often observed that the regulated entities are materially compliant with the letter of
the regulations on Internal Ombudsman, but the expected outcome of the scheme
remains below potential. This also 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.
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. However, it is
important to recognize that the role of the Internal Ombudsman is not intended to
impede but rather to ensure fairness, transparency, and adherence to regulatory
standards.
Regulated entities must appreciate that a well-functioning Internal Ombudsman
mechanism is beneficial for all stakeholders. Apart from reducing the hassles of
customers needing to approach alternate fora, it safeguards the regulated entity 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.
Therefore, I would urge regulated entities to make efforts to reorient their grievance
redress framework to support the Internal Ombudsman mechanism which would ensure
smooth functioning of the overall internal grievance redress process in the regulated
entities. Here, I would recommend the regulated entities to focus on three important
aspects to achieve the objective, which is integral in building a robust internal grievance
redress framework.
1. Firstly, the regulated entities should focus on providing adequate human
resources and infrastructural support to the office of the Internal Ombudsman to
function efficiently and effectively. Regulated entities may also explore the
possibility of periodical interaction with front line staff by the Internal Ombudsman
to help them gain insights on the ground level implementation of grievance
redress and plug the gaps identified. Similarly, a regular interface of the Internal
Ombudsman with Product and Business Heads could also be held for discussing
the grievance redress angle of specific activities and products of the regulated
entity.
2. Secondly, regulated entities should develop a comprehensive Standard Operating
Procedure (SOP) for grievance redress based on the inputs received from their
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Internal Ombudsman as also the decisions of the RBI Ombudsman. This is
essential to establish an institutional memory of grievance redress modalities. The
resulting SOP can serve as an operational manual for both the incumbent and
future Internal Ombudsman and their respective staff.
3. Lastly, regulated entities should aim to ensure that all customer concerns are
thoroughly addressed. The Complaint Management System of the Regulated
Entities should be designed in such a way that all rejected or partially rejected
complaints involving deficiency in service are auto escalated directly to the
Internal Ombudsman without any manual intervention, thereby facilitating a
secondary review by an impartial authority.
Recent regulatory development in Internal Ombudsman framework
The Reserve Bank has institutionalized the Internal Ombudsman framework in banks,
non-bank system participants, non-banking financial companies and Credit Information
Companies in various phases.
Recently, a review of the framework was undertaken by the Reserve Bank in line with
the integration of the erstwhile three RBI Ombudsman Schemes with the objective to
improve the customer service standards in the regulated entities. A
comprehensive Master Direction was issued in December 2023 to harmonise the
instructions applicable to the various regulated entities.
This Master Direction factored inputs from several sources including takeaways from
the last Internal Ombudsman Conference. It establishes consistency in various aspects,
such as the timeframe for escalating complaints to the Internal Ombudsman, specific
exclusions from such escalation, guidelines for temporary absence of Internal
Ombudsman, minimum qualifications for appointing Internal Ombudsman and reporting
formats. Additionally, it introduces the role of Deputy Internal Ombudsman.
Anticipated outcomes of the revised framework include the reinforcement of the Internal
Ombudsman mechanism and, consequently, the enhancement of the Internal
Grievance Redress system in regulated entities, and streamlining compliance
processes for added convenience.
Conclusion
Customer service and effective and timely grievance redressal forms the foundation of
trust and reliability that customers place on the financial system. A strong and resilient
grievance redress mechanism not only mitigates the hardship of the customers due to
deficiency in service, but also elevates the brand value of the entity in the financial
services space in general and customer delight in particular.
In essence, the Internal Ombudsman is not just a function; it's a force-a force for
positive transformation, a force for ethical banking, and a force for a future where
financial institutions evolve not just with the times but ahead of them. By strengthening
this role, regulated entities not only safeguard their reputation but also position
themselves as pillars of trust and stability in an ever-shifting financial landscape. Let us
acknowledge and empower the Internal Ombudsman as the change agent that propels
us into a future marked by trust, integrity, and enduring success. I hope today's
conference augments our efforts in strengthening the IO mechanism.
Thank you.
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Press release dated May 11, 2015