Banking as a service: consumer protection and the RBI Ombudsman

1. Banking as a service

Section 2(42) of the Consumer Protection Act, 2019 defines “service” as service of any description made available to potential users, and expressly includes the provision of facilities in connection with banking, financing and insurance. A customer who hires a bank's services for consideration — including charges, interest, or the use of his deposit — is a consumer under s.2(7). The old 1986 Act had the same inclusion, and the National Commission has treated bank customers as consumers since the late 1980s.

A borrower is also a consumer of the bank's loan services. But a person who uses banking services for a commercial purpose is excluded by s.2(7), unless the services are used to earn a livelihood by self-employment; large business accounts and inter-corporate disputes therefore usually go to the civil court or the DRT.

2. Deficiency in banking service

“Deficiency” (s.2(11)) means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance required by law or contract, and includes a negligent act or omission and the deliberate withholding of relevant information. In banking, the common heads are:

• wrongful dishonour of a cheque, or delay in collection;
• payment of a forged or altered cheque, or of a cheque contrary to a stop-payment instruction;
• unauthorised electronic transactions not reversed, ATM debits without cash dispensed, card fraud;
• loss of articles from safe custody or lockers;
• undisclosed or excessive charges, unilateral change of interest rates, and mis-selling of insurance or investment products;
• delay or refusal in returning title deeds after a loan is repaid, and harassment by recovery agents;
• failure to settle a deceased depositor's claim within reasonable time.

Charging interest under a contract is not a deficiency in itself, and s.21A of the Banking Regulation Act bars courts from reopening bank interest as excessive. The Act also recognises unfair trade practices (s.2(47)), such as false representations about a product, and unfair contracts (s.2(46)), such as excessive security deposits or one-sided penalty clauses, which the State and National Commissions can declare null.

On lockers the Supreme Court held in Amitabha Dasgupta v. United Bank of India, 2021 INSC 104, that a bank which broke open a locker in breach of its own procedure was guilty of deficiency in service and liable to pay compensation and costs, that banks cannot disclaim responsibility for the safety of lockers, and that the RBI should frame regulations on locker management. Those regulations now govern lockers.

3. The Commissions

• District Commission (s.34), State Commission (s.47) and National Commission (s.58). Pecuniary jurisdiction is fixed by the value of the consideration paid for the service, under the Consumer Protection (Jurisdiction of the District Commission, the State Commission and the National Commission) Rules, 2021: up to ₹50 lakh, above ₹50 lakh to ₹2 crore, and above ₹2 crore.
• A complaint may be filed where the complainant resides or personally works, and may be filed electronically.
• Limitation: two years from the date the cause of action arises (s.69).
• Reliefs (s.39): removal of the deficiency, refund, compensation for loss or injury including mental agony, punitive damages, discontinuance of unfair practices, and costs.
• Appeals lie from District to State (s.41), State to National (s.51), and National to the Supreme Court (s.67).

Where the question turns on disputed facts that need full trial, the Commissions may decline to decide it and leave the parties to the civil court, as the State Commission did on the contents of the locker in Amitabha Dasgupta.

4. The RBI's redress machinery

History. The RBI framed the first Banking Ombudsman Scheme in 1995, revised it in 2002 and 2006, and added schemes for NBFCs (2018) and digital transactions (2019). The Reserve Bank – Integrated Ombudsman Scheme, 2021, from 12 November 2021, merged the three into a single scheme with one centralised point of receipt, on the principle of “one nation, one ombudsman”. The schemes are made under s.35A of the Banking Regulation Act, s.45L of the RBI Act and s.18 of the Payment and Settlement Systems Act, 2007, which is why their awards bind the banks.

The 2026 Scheme. The Reserve Bank – Integrated Ombudsman Scheme, 2026 replaced the 2021 Scheme from 1 July 2026; complaints received before that date continue under the 2021 Scheme. Its main features, as summarised in the notices banks are required to display:

• it covers banks, eligible NBFCs, payment system participants, credit information companies and other RBI-regulated entities;
• the ground of complaint is deficiency in service; there is no ceiling on the amount in dispute;
• the customer must first complain in writing to the regulated entity; he may approach the Ombudsman if the complaint is rejected, the reply is unsatisfactory, or there is no reply in 30 days (longer where RBI timelines for fraud or chargeback disputes are longer). The time to approach the Ombudsman after that has been cut to ninety days from the one year allowed under the 2021 Scheme;
• complaints are filed free of cost online at the RBI's complaint management system, by e-mail or by post to the Centralised Receipt and Processing Centre at Chandigarh;
• proceedings are summary and non-adversarial, and the Ombudsman first tries conciliation;
• the Ombudsman may award compensation up to ₹30 lakh for consequential loss (₹20 lakh under the 2021 Scheme) and up to ₹3 lakh for harassment, mental agony, time and expenses (₹1 lakh earlier);
• an appeal lies to the Appellate Authority within 30 days;
• excluded matters include commercial judgments of the entity (such as a decision to refuse a loan), disputes with vendors, employer–employee matters, and matters pending before a court, tribunal or arbitrator.

Other RBI protections. The Charter of Customer Rights (2014), the requirement of an internal ombudsman in large banks, fair practices codes for lenders and recovery agents, and the limited liability framework for unauthorised electronic banking transactions (2017), under which a customer bears no loss for fraud caused by the bank's or a third party's breach if he reports it within three working days.

How this is examined

As a short note: “Bank consumer protection” (January 2026), “Consumer protection under banking service” (August 2024). Write s.2(42) and s.2(7), the heads of deficiency with examples, the Commissions in two lines, and the Ombudsman Scheme with its current figures. Name the 2026 Scheme and say it replaced the 2021 Scheme from 1 July 2026; an answer that gives only the 2006 Banking Ombudsman Scheme is out of date by two schemes.