In a move to rein in banks from shirking on its onus to take responsibility on the sale of third party financial instruments through the banking channel, the RBI has amended the Banking Ombudsman Scheme. Now, the RBI has allowed the banking ombudsman to impose a fine of up to Rs 20 lakh on banks for mis-selling of third party products, such as insurance and mutual funds. The fine that the ombudsman can levy has doubled from the earlier Rs 10 lakh. These new rules are applicable from July 1, 2017.
In its circular, RBI said, “The Reserve Bank of India has widened the scope of its Banking Ombudsman Scheme 2006, to include, inter alia, deficiencies arising out of sale of insurance/mutual fund/other third party investment products by banks. The pecuniary jurisdiction of the Banking Ombudsman to pass an Award has been increased from existing rupees one million to rupees two million.” Additionally, the RBI has also allowed the banking ombudsmen to award a compensation of up to Rs 1 lakh to anyone complaining for loss of time, expenses incurred and mental anguish.
