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World Consumer Rights Day, observed annually on March 15, is a global event. In 1985, the United Nations adopted the UN Guidelines for Consumer Protection, reinforcing global efforts to prioritize consumer welfare. India followed suit with the Consumer Protection Act in 1986. This legislation enshrines six fundamental consumer rights:

Right to Safety

Right to Information

Right to Choice

Right to Be Heard

Right to Seek Redressal

Right to Consumer Education

While these rights apply universally to all consumers purchasing goods or services, they are particularly crucial in the banking, financial services, and insurance (BFSI) sector, which primarily deals with money. Rampant mis-selling, fraud, and systemic flaws continue to plague the market, causing significant financial and opportunity losses. Vulnerable investors, customers, and account holders often bear the brunt of these losses.

Against this backdrop, the Annual Conference of the RBI Ombudsmen, organized by the Reserve Bank on March 17, 2025, aims to raise awareness about consumer rights and needs.

Addressing Consumer Grievances

In his inaugural address, RBI Governor Shri Sanjay Malhotra emphasized the importance of improving consumer services. He remarked, “We need to improve consumer services not only because it is our duty but because it is in our best interest. In this age of competition, we will not survive long if we do not provide quality service to our consumers.”

His statement underscores a critical issue: a large number of complaints from banking and NBFC customers remain unresolved at the branch level and escalate to the Ombudsman’s office. Despite advancements in customer experience, grievances continue to rise. In 2023-24, the 95 Scheduled Commercial Banks alone received over 10 million complaints. When NBFC complaints are included, the numbers are even higher. Additionally, complaints under RBI’s Integrated Ombudsman Scheme grew at an annualized rate of nearly 50% over the past two years, reaching 9.34 lakh in 2023-24. The number of complaints processed at the RBI Ombudsman’s office rose by 25%, from approximately 2,35,000 in 2022-23 to nearly 2,94,000 in 2023-24. Alarmingly, 57% of maintainable complaints required mediation or formal intervention by RBI Ombudsmen.

The Governor acknowledged the seriousness of the situation: “For us, even one complaint is a cause for concern. We have 10 million complaints, and with a rapidly growing customer base and an expanding suite of products, this number may increase if we do not act now.”

The Digital Shift and Its Challenges

With the advent of digital banking, services have shifted to a self-service model. Automated teller machines (ATMs), web portals, and mobile apps have largely replaced traditional branch visits for routine transactions like cash and cheque deposits, withdrawals, passbook updates, and fixed or recurring deposit creation. The Know Your Customer (KYC) process, mandated under the Prevention of Money Laundering Act, has also transitioned to online and video-based verification, minimizing the need for physical branch visits.

While digital banking offers convenience by removing geographical and time constraints, it also introduces security vulnerabilities and IT-related challenges. As a result, an efficient customer service mechanism and a robust grievance redressal system are essential for all regulated entities.

Combating Mis-Selling and Fraud

Mis-selling remains a significant concern in the Indian financial market, particularly in the insurance sector. Bank executives often promote products that yield higher commissions rather than those suited to the customer’s needs. Implementing proper checks and balances is crucial to preventing such malpractices. A well-functioning customer service desk and an effective grievance redressal system play a key role in addressing these issues.

The RBI Governor outlined key areas where regulated entities must improve, including:

KYC processes

Digital fraud prevention

Mis-selling prevention

Ethical recovery practices

Streamlining KYC Processes

One major source of customer dissatisfaction is the repeated request for KYC documents by different entities. If a customer submits documents to one financial institution, other regulated entities should not demand them again. Once a customer updates details such as a residential address with a financial sector regulator, the change is recorded in the Central Know Your Customer Registry (CKYCR), and other entities are notified. However, many banks and NBFCs have yet to implement this system at their branches, leading to unnecessary inconvenience. This issue must be addressed urgently.

Addressing Digital Fraud

The rising incidence of digital fraud is another major challenge. Many innocent customers fall victim to scams, often due to a combination of increased digital transactions, sophisticated fraud techniques, and a lack of awareness. To mitigate this issue, financial institutions must implement robust internal controls and enhance digital financial literacy among consumers.

The Role of AI in Grievance Redressal

Artificial intelligence (AI) has the potential to revolutionize grievance redressal systems. The Governor emphasized, “Integrating AI at every stage—from complaint lodging to closure—can result in a seamless, efficient, and data-driven grievance redressal system. Such a framework not only reduces processing times and addresses repetitive complaints but also fosters equitable outcomes by mitigating human biases.”

By leveraging AI, regulated entities can:

Improve response times

Automate repetitive complaint handling

Enhance data-driven decision-making

Ensure fair and unbiased resolutions

Conclusion

India’s banking sector is at a critical juncture. While digital advancements have improved accessibility, they have also introduced new challenges that require immediate attention. Strengthening grievance redressal mechanisms, streamlining KYC processes, preventing digital fraud, and leveraging AI for consumer services are essential steps toward a more customer-centric financial ecosystem.

With concerted efforts from regulators, financial institutions, and consumers, India can build a robust, transparent, and efficient financial sector that truly prioritizes consumer protection.