By Madhu Srinivas, IFMR Finance Foundation
This is the first of a two-part blog series on the state of Grievance Redress in the Indian Financial System.
An independent grievance redress function that financial services consumers have access to, in the event of less than satisfactory resolution of one’s grievances by the internal grievance redressal processes of financial services providers, is an important piece of the larger customer protection frameworks in place for India (albeit one that is limited to being ex post in nature). Such an external grievance redressal mechanism has an important role to play in market conduct supervision. The redress function can potentially serve two important purposes:
- Misconduct by firms imposes costs on society and may damage the confidence in the financial system. This could fuel a retreat of users of financial services from the formal system. An effective and quick redress mechanism would mitigate this problem to a large extent
- The analysis of complaints received through the redress mechanism, in particular, for their impact on institutional and systemic stability, could inform future regulation/regulatory action on micro-prudential and market conduct aspects.
While much has been written about prudential regulations and systemic stability, especially in today’s scenario of stressed banking balance sheets, regulations for ensuring market conduct have received relatively little attention, with a significant part of the focus being limited to the possible creation of a Financial Redress Agency (FRA), as envisaged by the Financial Sector Legislative Reform Commission (FSLRC). More recently, in June 2016, the Task Force set up by the Government of India for establishing the FRA submitted its report that covered an implementation plan to operationalise such a statutory FRA (the report was made available for public comment in December 2016).
Taking a step back, in this post, we carry out a short comparative assessment of the nature of redress systems in the Indian financial sector, along specific metrics, to give a more nuanced sense of differences in approach and effectiveness (without necessarily concluding whether one system is more successful than the other). For the sake of simplicity we take into account only the external grievance redress mechanism in the Banking, Insurance, Pensions and Capital Markets sectors and contrast these with the Financial Ombudsman Service of Australia as a benchmark for comparison. The below table summarises, along certain metrics, the existence or otherwise of certain elements of the redress mechanisms, and a more detailed analysis follows it. It is to be noted that large categories of institutions remain left out of current systems – a case in point is a complaint against an non-banking financial company (NBFC) or a non-bank Prepaid Payment Instrument Provider (PPI). There are also jurisdictional uncertainties such as for annuities and pension products provided by insurance companies for instance.
|Financial Ombudsman Service, Australia||RBI Banking Ombudsman||SEBI SCORES||Insurance Ombudsman|
|Channel for Complaint Submission|
|Online lodging, toll-free calling lines, E-mail, letter, fax and in person||Offices in 18 locations in India, online lodging||Online lodging, toll-free calling lines||Offices in 17 locations in India, online lodging, toll-free calling lines|
|Classification of disputes|
|Disputes are classified under various dimensions such as – complexity of dispute, demographic characteristics of disputants, nature of financial service, issue involved and so on.||Disputes are classified under various dimensions such as – product type, demographic characteristics of disputants, legal status of the disputant, FSP against which the dispute has been raised, nature of dispute.||Disputes are classified under two main dimensions –
1. Entity against which dispute has been raised and
2. Nature of dispute raised.
However, the second dimension did not have any further categorisation.
|Disputes are first separated as being related to either Life Insurance or General Insurance and then further classified by – Geographical origin of dispute, FSP against which the dispute has been raised, Nature of dispute. The categories under Nature of dispute are along operational lines, for instance partial or total repudiation of claim, delay in settlement of claims.|
|Whether ‘mis-selling’ is captured as a separate category|
|‘Mis-selling’ is not an explicit category under which disputes are classified, but disputes are classified under categories that have further broken down mis-selling, such as – Failure to act in client’s best interest, Inappropriate advice, Incorrect advice and so on.||No such categorisation. However, there is a section on mis-selling of third party products (insurance and pension) in rural areas in Annual Report 2015-16 – it is therefore not capturing misselling of pure banking products such as loans, FDs.||No recognition of mis-selling, either implicitly or explicitly.||Though there is no explicit or implicit mention of mis-selling, there is a separate classification of complaints against (only) life insurers, which includes a category “Unfair Business Practice”.|
|Classification based on the Financial Services Provider (FSP) against whom grievance has been raised|
|No. The Terms of Reference of the FOS mandate it to keep confidential all information pertaining to a dispute, subject to certain conditions. However, the FOS is required to report information about the disputes to the Australian Securities and Investments Commission (ASIC).||Yes||Yes||Yes|
|Classification based on the complexity/ severity|
|Yes, complaints are categorised into Fast-track, Standard and Complex – along increasing complexity and increasing time spent to close.||No||No||No|
|Satisfaction level of the complainants|
|Yes, a yearly survey is conducted by FOS to ascertain the satisfaction level of the complainants||There is no systematic process of doing surveys to ascertain the satisfaction level of the complainants. However a sample survey was conducted last year, in the New Delhi Region, to ascertain the reason for the high spurt in complaints in that region. This survey also included questions on the satisfaction level of the complainant with the Ombudsman||Yes, SEBI is currently conducting an independent survey to gauge the efficacy of the redressal mechanism. It is unclear if this will be a regular feature or a one-off occurrence.||No|
|Disclosure of names of erring financial institutions, agents|
|No. The Annual Review Report 2015-16 contains no names of any FSP or its agents.||Yes. The annual report, 2015-16, has a table which lists the number and type of dispute raised against each bank. For instance State Bank of India had 1172 complaints raised against it pertaining to deposit accounts in the year 2015-16. It should also be noted that the annual report carries sample case studies of exemplary complaints received by the banking ombudsman. Though these case studies are anonymised and the name of the bank is not revealed.||Yes. The SCORES website has entity wise numbers on Pending complaints against them. This information is updated regularly.||Yes . The Annual Report 2015-16 of the Governing Body of Insurance Council (GBIC) has various tables which list the number of complaints, nature of complaints, time taken to dispose the complaint for each entity against which complaints were received.|
|Feedback loops to regulators|
|As mentioned in their 2015-16 report, the FOS is required, as per the ASIC regulatory guide 139, to report on systemic issues and notify Australian Securities and Investment Commission (ASIC) of cases of serious misconduct. In connection with this, FOS reported 58 cases of definite systemic issue in 2015-16||There is no explicit mention of any feedback being given to the regulator. However, the latest annual report of the banking ombudsman mentions as one of its goals – “To provide policy feedback/suggestions to Reserve Bank of India towards framing appropriate and timely guidelines for banks to improve the level of customer service and to strengthen their internal grievance redress systems”||No such mention anywhere.||The annual report of the GBIC gives a brief analysis of the complaints received and makes certain suggestions based on this analysis. However, it is unclear if the audience is only the regulator or if it includes insurers and other market participants.|
|The Body or Authority to make appeal to|
|The Australian courts are the appellate authority||The Deputy Governor-in-Charge of the department of RBI administering the Banking Ombudsman Scheme (Consumer Education and Protection Department) is the designated Appellate Authority||Securities Appellate Tribunal (SAT)||Consumer/High courts of India|
|Details about number of cases that went to appeal|
|Not Given||34 awards went to appeal for the year 2015-16||Not Given||Not Given|
|Disclosure of Total Disputes Received, Total Closed|
|Disclosure of average number of days to close a dispute|
|Yes, 62 days||No||Yes, 36 days||No|
|Age Profile of closed disputes|
|Yes||No but the age profile of open disputes is given||Yes. It is given as the number of disputes closed in buckets of – 0-30 days; 31-160 days; 61-90 days and so on till More than 360 days.||Yes. It is given as the number of disputes closed in three buckets – Less than 3 months; 3 months to 1 year; Greater than 1 year.|
The colour coding is provided to indicate a rudimentary comparative picture, moving from green through yellow to amber, to indicate good (existence of adequate practice for a metric) to bad (no evidence for existence of any practice for the metric).
Overall, we see that there exists a set of external grievance redress forums available today, albeit ones that are varied in completeness and effectiveness and provide a fragmented set of protections for aggrieved consumers. In the next post we take a deeper look at the observations made above and briefly analyse them.
 We have excluded the grievance redressal mechanism of the Pension Fund Regulatory and Development Authority of India as they currently regulate only 2 products and also score adversely on almost all the metrics.
 The colour coding is provided to indicate a rudimentary comparative picture, moving from green through yellow to amber, to indicate good (existence of adequate practice for a metric) to bad (no evidence for existence of any practice for the metric).
 All the data used to populate the below table came from the following sources –
Report of the Task Force on Financial Redress Agency, Government of India June 2016
The Banking Ombudsman Scheme 2006, Reserve Bank of India(RBI), Annual Report 2015-16
Securities and Exchange Board of India(SEBI) Annual Report 2015-16
SEBI Complaints Redress System website – http://scores.gov.in/Reports.aspx?Tab=0
Consolidated Annual Report of the office of the Governing Body of Insurance Council (GBIC), 2015-16
Pension Fund Regulatory and Development Authority(PFRDA) Annual report, 2013-14
Insurance Regulatory and Development Authority of India (IRDAI) , Annual report 2015-16
Financial Ombudsman Service, Australia. Annual review 2015-16
 The Insurance Ombudsman is provided with a Secretarial Staff by the Governing Body of Insurance Council and such staff is drawn from Insurance Companies. http://www.policyholder.gov.in/FAQ_on_Ombudsman_Scheme.aspx
 The Banking Ombudsman Scheme 2006, Reserve Bank of India(RBI), Annual Report 2015-16
 This information is not available publicly, and/or periodically. It was obtained from the Report of the Task Force to set up Financial Redress Agency (FRA), 2016