The Reserve Bank of India (“RBI”), has, in a Press Release dated 15th November, 2021 has issued a direction with reference to “Appointment of Internal Ombudsman by Non-Banking Financial Companies” (“Direction”) directing NBFCs registered with RBI, fulfilling the criteria detailed below, to appoint an Internal Ombudsman (“IO”):
NBFCs fulfilling the following criteria as on date would be required to appoint the IO:
a) Deposit-taking NBFCs (NBFCs-D) with 10 or more branches.
b) Non-Deposit taking NBFCs (NBFCs-ND) with asset size of Rs.5,000 crore and above and having public customer interface.
The following types of NBFCs will be excluded from the applicability of this direction:
a) Stand-alone Primary Dealer;
b) Non-Banking Financial Company – Infrastructure Finance Company (NBFC-IFC);
c) Core Investment Company (CIC);
d) Infrastructure Debt Fund – Non-Banking Financial Company (IDF-NBFC);
e) Non-Banking Financial Company – Account Aggregator (NBFC-AA);
f) NBFC under Corporate Insolvency Resolution Process;
g) NBFC in liquidation;
h) NBFC having only captive customers
Key Takeaways:
1. An NBFC shall be required to comply with the provisions of this direction as follows:
• NBFC fulfilling the criteria (mentioned above) as on date – within six months;
• NBFC fulfilling the criteria post issue of this direction and NBFC commencing operations after the issue of this direction – within six months of attaining the specified criteria, as may be applicable.
2. Any NBFC which is covered by this direction shall continue to have an IO for a period of three years after the company falls below the thresholds (para 2 above). If the term of the incumbent IO ends before this three-year period, the NBFC, with the prior approval of RBI, may not appoint another IO.
3. Appointment of the IO:
The person to be appointed as IO shall fulfil the following prerequisites:
(i) The person shall be either a retired or a serving officer, not below the rank of Deputy General Manager or equivalent in any financial sector regulatory body/any other NBFC/bank, with necessary skills and experience of minimum of seven years of working in areas such as non-banking finance, banking, financial sector regulation or supervision, or consumer protection.
(ii) The person shall not have worked/be working in the NBFC/companies in the Group1 to which the NBFC belongs in which he/she is being appointed as IO.
(iii) The person appointed as IO shall not be above the age of 70 years at any point of time during the tenure as IO
4. The NBFC may appoint more than one IO depending on the number of complaints received/branch network. In such a case, the NBFC shall define the jurisdiction of each IO
5. Tenure of the IO:
The tenure of the IO shall be for a fixed term of not less than three years, but not exceeding five years and the same shall be indicated in the appointment letter. The IO shall not be eligible for reappointment or for extension of tenure in the same NBFC.
The NBFC shall undertake the process of fresh appointment well in advance to fill the vacancy before the expiry of the incumbent IO and ensure that the post of the IO does not remain vacant at any point of time.
6. Secretariat and cost of the office of the IO:
The NBFC shall depute such number of its officers and/or other staff and make available such infrastructure to the office of the IO as may be considered necessary for its effective functioning.
a) The Board of the NBFC shall fix the emoluments/facilities/benefits of the IO, which should be appropriate keeping in view the stature and position of the IO being at the apex of the grievance redress mechanism of the NBFC, and the need to attract experienced persons with requisite expertise.
b) The emoluments/facilities/benefits of the IO, once determined, shall not be changed during the currency of his/her tenure.
7. The directions also provides details on:
i. Procedural guidelines for NBFCs regarding complaints referred to the IO by the NBFC
ii. Role and responsibilities of the IO
8. Reporting to RBI: The NBFC shall put in place a system of periodic reporting of information to Reserve Bank as indicated below
i. On a quarterly basis, the total number of complaints received, the number of partly or wholly rejected complaints and the number of complaints escalated to the IO, within 15 days from the end of the quarter;
ii. On an annual basis: the number of cases where the decision of IO has been rejected (with the approval of Managing Director/Chief Executive Officer), to be submitted by April 15; and (ii) the number of cases closed by the IO, and age-wise number of cases where the NBFC was yet to implement the decision of the IO, to be submitted by April 15.
The reporting format has also been provided.
9. Audit: The internal audit of the NBFC shall cover the implementation of this direction.
Please refer to the hyperlink provided below for a detailed read of the direction:
