RBI directs auto-transfer of unresolved complaints to IO

Reserve Bank of India (RBI) has overhauled Internal Ombudsman (IO) framework, mandating fully automated complaint management systems in banks and eligible NBFCs, with auto-escalation of unresolved or rejected complaints to the Internal Ombudsman.

This marks a decisive shift towards stronger customer protection, higher accountability, and reduced arbitrariness in grievance redressal.

Key Highlights

• Banks and NBFCs must implement a fully automated Complaint Management System (CMS).
• The CMS must provide direct access to:
  • Internal Ombudsman (IO)
  • Deputy Internal Ombudsman (DIO)
• All partially resolved or wholly rejected complaints must be auto-escalated to the IO.
• No complaint proposed for rejection can be closed without IO review.
• Objective:
  • Reduce flow of complaints to RBI’s External Ombudsman Scheme
  • Improve first-level resolution within regulated entities

What Has Changed?

Earlier Framework

• IO appointment was mandatory, but:
  • Role often advisory
  • Banks had wide discretion
  • IO review sometimes post-facto
• Customers often got relief only after approaching RBI Ombudsman

New Framework

• IO is now a mandatory, quasi-independent review layer
• Clear role in the complaint life cycle
• Defined timelines, reporting lines, and safeguards
• Accountability is front-loaded within banks

Key shift:
Customer protection is no longer reactive; it is now built into internal processes.

Complainy Handling Mechanism (STEP-BY-STEP)

1. Categorisation of Complaints (Mandatory)

Banks must classify complaints as:

• Fully resolved
• Partially resolved
• Wholly rejected

Only after this classification can complaints move to the IO.

2. Auto-Escalation to Internal Ombudsman

• Complaints that are:
  • Partially resolved, or
  • Wholly rejected
    ➡️ Must be auto-transferred to the IO

Important:

• The same branch/unit cannot close the complaint at any stage.

3. Scope of Internal Ombudsman

• IO will not handle complaints received directly from the public
• IO will examine only those complaints:
  • Already examined by the bank
  • Proposed to be rejected or partially resolved

Excluded from IO purview

• Complaints relating to:
  • Corporate fraud
  • Misappropriation by bank
  • Issues not impacting the customer directly

Timelines Prescribed

• Complaints with specific timelines (RBI / NPCI / card networks):
  • IO gets minimum 10 days for review
• All other complaints:
  • IO review within 20 days from receipt
• Credit Information Companies (CICs):
  • Escalation to IO within 25 days
• Final communication to customer:
  • Within 30 days from date of complaint receipt

Board-Level Oversight Strengthened

• Customer Service Committee (CSC) of the Board:
  • Determines number of IOs and DIOs
  • Reviews cases where IO decisions are overruled
• Overruling IO decision:
  • Allowed only with approval of:
    • Whole-time Director or
    • Executive Director
• All such overruling cases:
  • Must be placed before the CSC of the Board

Reporting & Supervisory Powers

• RBI has introduced detailed quarterly reporting on:
  • Complaints handled
  • IO decisions
  • Overruled cases
• RBI may:
  • Review cases where customers succeed before RBI Ombudsman
  • Especially if a bank had earlier rejected the IO’s recommendation

Implication:
Weak grievance handling can now trigger supervisory scrutiny and reputational risk.

Applicability

Banks

• Applicable to banks with 10 or more banking outlets in India
  (as on 31 March 2025)

NBFCs

Applicable to:

• Deposit-taking NBFCs with 10 or more branches
• Non-deposit-taking NBFCs with:
  • Asset size ≥ ₹5,000 crore
  • Public customer interface
    (as on 31 March 2025)

Excluded NBFC Categories

• Housing Finance Companies
• Core Investment Companies
• Infrastructure Finance Entities
• NBFCs under insolvency or liquidation

Other Regulated Entities Covered

• Small Finance Banks
• Payments Banks
• Non-bank Prepaid Payment Issuers
• Credit Information Companies

Why This Matters?

For Customers

• Faster resolution
• Fairer outcomes
• Reduced need to approach RBI Ombudsman

For Banks & NBFCs

• Higher compliance and IT costs
• Greater reputational risk for poor grievance handling
• Stronger internal controls required
• Board-level accountability for customer service

For RBI

• Less burden on external ombudsman system
• Stronger conduct supervision
• Customer protection becomes a core supervisory metric, alongside:
  • Capital adequacy
  • Asset quality