Introduction
Complaints dealt with by IOs
Escalation and reporting of complaints
Responsibilities of IOs
Comment
On 15 November 2021, in recognition of the systemic importance of non-banking financial companies (NBFCs) in credit delivery and their growing integration into the financial sector, the Reserve Bank of India (RBI) issued directions requiring NBFCs that meet certain criteria to appoint an internal ombudsman (IO). All deposit-taking NBFCs with 10 or more branches and all non-deposit-taking NBFCs with assets of 50 billion rupees (approximately $666.36 million) or more must appoint an IO. Categories of NBFCs such as primary dealers, core investment companies, NBFCs in liquidation, NBFCs under corporate insolvency processes and NBFCs classified as infrastructure finance companies are exempt from this requirement. Notably, this follows the consolidation of various ombudsman mechanisms into the Reserve Bank – Integrated Ombudsman Scheme 2021 issued by the RBI on 12 November 2021.
An IO's role is to "deal only with the complaints that have already been examined by the NBFC but have been partly or wholly rejected by the NBFC". The RBI's guidance also excludes the following categories of complaints from scrutiny by the IO:
- those relating to fraud or misappropriation, except those resulting from a deficiency in service by the NBFC;
- complaints over internal administration, human resources or staff remuneration;
- any references to suggestions or commercial decisions of the NBFC; and
- complaints that have been decided by or are pending in courts or consumer forums.
Any such complaints received by an IO are to be referred back to the NBFC. Perhaps with the intent to ensure autonomy from the business functions of the NBFC, the RBI's directions prescribe that an IO's administrative line of reporting is to the managing director or chief executive officer of the NBFC, with functional reporting only to the board of directors of the NBFC.
Escalation and reporting of complaints
An NBFC must put in place a standard operating procedure that is approved by its board of directors to auto-escalate all complaints that are partly or wholly rejected by the NBFC's internal grievance redress mechanism to the IO. All such complaints must be internally escalated by the NBFC within three weeks of receipt, and the NBFC and the IO must ensure that a decision is communicated to the complainant within 30 days of receipt of the complaint. An NBFC must report to the RBI in a prescribed format, within 15 days of the end of each fiscal quarter:
- the total number of complaints received;
- the number of partly or wholly rejected complaints; and
- the number of complaints escalated to the IO.
Further, on an annual basis before 15 April of each year, an NBFC must report to the RBI the number of cases closed by an IO, and the period from the receipt of complaints in cases where the NBFC has yet to implement the decision of the IO. The RBI's directions also require an IO to furnish reports to the board of directors of the NBFC at least biannually, and preferably at quarterly intervals.
An IO must periodically analyse the patterns of all complaints received against the NBFC, on the basis of categories such as product, category, consumer group and location, and provide feedback to the NBFC. However, an IO is not required to deal with any complaints received directly from customers or the public, nor can the IO represent the NBFC in legal proceedings before any court or authority. An IO can examine complaints on the basis of:
- records available within the NBFC;
- documents submitted by a complainant; and
- responses provided by the NBFC to any specific queries raised by the IO.
An ombudsman can seek additional information from the complainant through the NBFC. An IO can meet relevant departments of the NBFC and request records and documentation available within the NBFC that would be necessary for the IO to examine any complaint.
Requiring the appointment of an IO in deposit-taking and large NBFCs is a well-intentioned move. However, it does lead to the obvious question as to whether this is just another layer of bureaucracy added to paper over cracks in governance issues that could be more appropriately addressed by structural measures. Alternatively, such issues could be dealt with by direct supervision of the effectiveness of an NBFC's consumer interface by either the RBI or a self-regulatory body.
For further information on this topic please contact Aditya Bhargava or Sristi Yadav at Phoenix Legal by telephone (+91 22 4340 8500) or email ([email protected] or [email protected]). The Phoenix Legal website can be accessed at www.phoenixlegal.in.