RBI Invites Public Input on Draft Master Direction to Strengthen Internal Ombudsman System

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The Reserve Bank of India has released a draft Master Direction to overhaul the Internal Ombudsman mechanism within regulated entities. It aims to improve grievance redressal efficacy by empowering ombudsmen, introducing a two-tiered complaint resolution structure, and extending the RBI Ombudsman scheme to rural cooperative banks. Public feedback is now sought to finalize these reforms.

Key Updates from RBI Draft Master Direction 2025

The Reserve Bank of India (RBI) has taken a significant step toward enhancing consumer grievance redressal by proposing a revised framework for the Internal Ombudsman (IO) mechanism in regulated financial entities (REs). The draft Master Direction titled "Reserve Bank of India (Internal Ombudsman for Regulated Entities) Directions, 2025" invites public comments to help refine the proposed changes aimed at transforming the grievance resolution landscape.

Background and Objective

Since institutionalizing the Internal Ombudsman mechanism across banks, NBFCs, and credit information companies, RBI has continuously sought to improve its effectiveness. The 2025 draft aims to address operational challenges, streamline processes, and elevate service standards, ensuring meaningful and timely grievance resolution within entities regulated by RBI.

Notable Updates in the Draft

Empowering Internal Ombudsmen: IOs are proposed to have enhanced powers including compensation authority and direct access to complainants, bringing their role closer in scope and effectiveness to the RBI Ombudsman.

Two-Tier Grievance Redressal: Introduction of a two-tier system within regulated entities before the grievance escalates to the IO, intended to filter and resolve issues faster internally.

Expanded Ombudsman Coverage: Rural cooperative banks, including State Co-operative Banks and District Central Cooperative Banks formerly under NABARD, will now fall under the RBI Ombudsman scheme.

One Nation, One Ombudsman: The revised scheme adopts a jurisdiction-neutral approach, ensuring unified grievance redressal standards across different regions and entities.

Simplification and Timelines: Procedures are being simplified, and timelines reduced to ensure fair, speedy, and effective resolution of complaints.

Major Takeaways for Regulated Entities and Consumers

The changes seek to improve accountability and consumer confidence in the financial sector.

Enhanced compensation powers for IOs ensure better deterrence against service deficiencies.
Extending the ombudsman mechanism to more cooperative banks broadens consumer protection access.

The draft opens for public comments, indicating RBI's intent for stakeholder-inclusive policy formation.

Next Steps

The draft Master Direction is available on the Reserve Bank’s official website for public consultation. Feedback from stakeholders will shape the final version, expected to be notified soon. This initiative aligns with RBI's broader strategy to strengthen consumer protection and grievance mechanisms across the Indian financial sector.

Source: Economic Times, Fintech BizNews, Reserve Bank of India official releases

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