Exemplary cases dealt with by Banking Ombudsmen

Exemplary cases dealt with by Banking Ombudsmen (BO) during 2015-16

1. Non-issue of No Dues Certificate (NDC) by Bank

Bank not issuing No Dues Certificate (NDC) despite repayment of entire loan as per the terms of sanction of loan in 60 EMIs of ₹4150 each. He approached office of BO for directing Bank to issue NDC. During the conciliation meeting, the complainant was ready to pay ₹10000 more if asked by BO as he wanted NDC. The bank officials admitted that there was a mistake committed at the time of issuance of sanction letter and they had failed to detect the mistake till the complainant approached them with the request for NDC. According to the Bank, an amount of ₹56471 was still outstanding as per the loan account statement with interest rate applied at 14.25% and NDC would be issued on payment of that. Bank officials could not clarify how the mistake happened and why it was not detected by any of their officials and audit.

Bank was directed to issue a letter stating the balance amount payable by complainant considering the total amount payable to the bank as ₹4150*60 plus penal interest, if any, for delay in making any of the instalments, if not recovered already, within 7 working day from the date of receipt of the Award and convey it to complainant. Within 30 days from the date of acceptance thereof by complainant and payment of balance amount as advised therein, the Bank should issue him NDC.

2. Account of customer debited at ATM when he wanted to do balance enquiry

As stated by complainant, on 26.2.2016, he requested for balance enquiry only at Bank’s ATM in Bangalore but he got a message regarding withdrawal of ₹ 11500 from his account. His complaint was entered in CMS on 17.3.2016 in Bank. As the customer did not receive the satisfactory reply from Bank’s branch, he lodged the complaint with BO. Bank failed to submit CCTV footage despite several communications from BO. BO has, therefore, directed Bank to pay ₹ 11500 alongwith penalty of ₹100 per day for the period starting after 7 days from the date of complaint to the date of payment by the Bank.

3. Wrong EMIs recovered by Bank

Complainant had taken a loan of ₹ 617000 on 22.7.2009 for a tenure of 20 years. EMI was fixed as ₹ 6150 and standing instruction was given by complainant to Bank to debit ₹ 6150 monthly. The borrower filed a complaint against the Bank when he received demand notice to pay the difference amount of ₹ 295000 in lump sum towards short payment of EMI to his housing loan a/c. Bank’s Internal Ombudsman had informed that short recovery of loan was noticed in Bank’s internal audit and the system showed only lesser amount of EMI of ₹3700 as against ₹ 6150(Actually required). The bank neither intimated the party of lower EMI debited nor sent any overdue notices to the borrower. BO directed Bank to recover the shortfall in EMI from the customer and recover the correct amount of EMI for the remaining tenure of the loan. It decided that Bank was not justified in charging any additional /compound penal interest on the shortfall as the Bank was responsible for its act of omission

4. Enhancement of interest rate on home loan without basis

The complainant had availed a home loan of ₹15, 04,000.00 during December 2008. As per the Arrangement Letter interest rate was fixed at 8.50% p.a., with reset every five years from the date of disbursement of the first instalment. The complainant alleged that after the lapse of first year, the rate of interest was changed to 9.50%, then 10%, and then the rate went to as 12.20% without prior intimation. On taking up the complaint with the bank, it was observed that the loans above ₹ 5, 00,000.00 and up to ₹ 20, 00,000.00, interest was to be charged at 9.25% p.a. fixed with reset every five years. However, as per the arrangement letter, the interest rate was erroneously indicated as 8.50% p.a. fixed for the first five years instead of 9.25%. BO observed violation of RBI guidelines on fair and transparent practices of lending in bank’s charging of rate of interest at 9.25% instead of 8.5% as per arrangement letter .The Banking Ombudsman directed the bank to refund the difference amount between the amount of interest calculated at 9.25% and 8.5% as per arrangement letter for the period of first five years .The bank complied with the direction and credited back an amount of ₹ 32,044.00 to the loan account.

5. Excess interest charged on Education Loan

The complainant availed an education loan of ₹10,00,000.00 from the bank. The main allegation of the complainant was that the bank had charged excess interest contrary to terms of agreement.

On a scrutiny of the relevant documents it was observed that both in the loan agreement and the sanction letter, the effective rate of interest officially contracted was 12.5 %. However the bank had charged interest @15.65 %. The bank had informed that the rate of interest then prevailing for education loans up to ₹4.00 lakh (0.5 % below PTLR) was inadvertently mentioned in the sanction letter, whereas the applicable rate for education loan above ₹4.00lakh was 1 % above PLR. Since the party was only bound by the contracted rates, the bank was directed to honour the terms and conditions of sanction and to refund the excess amount recovered from the party. As per BO’s order, the bank repaid an amount of ₹4, 20,268.00 to the customer, being the excess interest charged.

6. Release of lien on FD (FCNR deposits)

The complainant had opened FCNR deposits with a bank along with her husband Mr.X under E or S clause. Mr.X, one of the directors of a shipping company, was also a guarantor for the various credit facilities granted by the bank. As the company had failed to fetch sufficient business to carry out its commitments, bank had decided to exercise its right of general lien on the deposits. The bank had exercised general lien on complainant’s joint FD with E or S clause.

On a scrutiny of bank’s reply dated July 13, 2015 it was observed that the complainant had no encumbrances and was rightly entitled to the deposit in her individual capacity and hence bank’s action in creating a lien was not in order. The creation of such a lien withheld the natural rights to the depositor, who had no liability with the bank.

In view of the above mentioned facts, a direction was issued to the bank to release the lien on the deposit and report compliance .The bank implemented our direction and released the lien on FD A/c of the complainant.

7. Dishonoured Cheque - bank wrongly allowed withdrawal of cheque amount

The complainant had deposited a cheque for ₹.85000/-with his bank for collection on 22-09-2015.The customer had withdrawn the amount of ₹85,000.00 on 28-09-2015, following the credit of the cheque amount to his SB A/c. The complainant was informed of the dishonour of the cheque and was advised to pay back the amount with SB interest as the cheque had bounced from the paying bank with a reason “Account closed”. The complainant approached BO stating that he was innocent in the matter as the withdrawal had been bonafide following the credit proceeds of the cheque by the bank in to his account. He also alleged that bank had been threatening him with legal notice, etc.

On taking up the matter with the bank it was observed that bank had not taken due precautions relating to actual collection of proceeds before making the payment. The cheque was sent for collection on 22.09.2015 and they had credited the amount that day itself without ensuring collection proceeds. The dishonoured cheque was received by them only on 29-09-2015. Further, bank held the view that the customer presented the cheque with dishonest intention and intended to initiate legal action against the customer.

On analysing the case, BO took the view that while a prima facie lapse existed on the part of the bank in not ensuring actual collection and transfer of funds to his account, the lapse did not give the customer immunity to derive undue enrichment at the cost of bank’s funds, which he had to dutifully remit back to the bank The complainant was advised to take up the matter with the drawer of the cheque under NI Act, 1881 as it was a case of cheating by the drawer. In view of the special circumstances of the case, bank was advised to take suitable steps to recover the amount in four instalments without charging any interest.

8. Dishonour of cheque on technical reasons and bank not having acted in time

The complainant was an account holder of a bank “A”. A cheque for ₹.200,000.00 was submitted at bank “B”, was dishonoured on 02.09.2011 even when sufficient balance was available in customer’s account. Besides an amount of ₹.150.00 was levied as cheque return charges one day prior to the dishonour of cheque. Customer had filed a complaint with bank “A” for loss of goodwill. The bank had not replied even after several personal visits and communications with the bank. The bank “B” had given a reply that the disputed cheque was returned with reason “image not uploaded” .The complainant approached us for taking up the matter with the bank and seeking compensation for not making a valid reply for over 4 years.

On taking up the matter with the bank it was observed that the cheque was presented on September 01, 2011 when there was insufficient balance for honouring cheque of ₹.200, 000.00 Hence cheque return charges were debited. Again on 02.09.2011, the same cheque was presented and was returned for technical reasons by the bank. On a careful examination of the various reports furnished by the bank, it was observed that the bank had wrongly dishonoured the cheque on 02.09.2011 (when there was sufficient balance in the account) for technical reasons such as “image not loaded” which was beyond the control of customer and he was not to be blamed or made accountable. Besides, it was noticed that though the complainant had been making representations to the bank time and again, the branch had not been prudent in sending satisfactory replies to him. It was ascertained that the bank’s internal compensation policy did not cover deficiencies on account of wrongful dishonour of cheques and therefore, in consultation with the bank officials, a reasonable amount of compensation was decided to be paid to the customer which was also to the customer’s satisfaction.

9. Marking of Lien on account without informing customer

The complaint was regarding debiting of account against failed ATM transaction.

In January 2016, a lien was marked on the customer’s account for an ATM transaction of ₹.10, 000.00 made on 24.08.15.His account was debited for the amount on 29.2.16.This transaction was not reflected in his account statement. The customer therefore filed a complaint presuming that the lien was against the failed transaction on 24.08.15.

The bank informed vide letter dated 22.04.16 that the debit was against a successful transaction on 24.08.15, from a different ATM. Documents establishing a successful transaction on 24.08.15 were produced. Due to a glitch in the system there was a delay in debiting the customer’s account and the amount was debited only on 29.02.16.

Though the bank debited the amount against a successful transaction, the action of the bank by marking a lien on the customer’s account without informing him was not fair. Moreover, the debit against the ATM transaction was made after a lapse of 5 months. In view of the hardship caused to the customer, the bank was advised to pay suitable compensation to him as per their Internal Compensation Policy.

10. Death claim by Nominee on FD A/c- Bank insisted on Succession Certificate.

BO had received a complaint alleging that the bank was insisting on Succession Certificate for withdrawal of the amount of fixed deposit with the bank in the name of her deceased husband, even though she was the nominee for the deposits as per bank records. On taking up the case with the bank, the bank had stated that a dispute was pending before the Court between the legal heirs and the Succession Certificate was required based on the interim judgment of the Court. On a scrutiny of the judgement of the Court, BO observed that the bank could insist for succession certificate only if it was necessary for withdrawing the deposits as per banking rules. Further, the order of the court was not intended to affect the procedural formalities of the bank for releasing fixed deposits. As there was no order from the competent court restraining the bank from making the payment from the account of the deceased, Banking Ombudsman directed the bank to make payment to the nominee in terms of instructions contained in RBI circulars RPCD.CO.RF. BC.No.12 07.38.01/ 2005-06 datedJuly 12, 2005, DBR.No.Legal BC.21/09.07.006/ 2015-16 dated July 01, 2015 and IBA Model operational procedure for settlement of claims of deceased depositors, June 2006.

11. Premature closure of NRE FD a/c on death of depositor- Loss to the Legal heirs.

Shri X, father of the complainant Smt. Y had a NRE fixed deposit of ₹45.00 lakh with Kollam branch of Bank B for a tenure of one year with effect from 15.5.2015. After his death, the legal heirs (his 3 daughters including the complainant) approached the bank to claim the amount in the FD A/c. The branch manager advised them to produce legal heirship certificate, etc., to claim the amount of deposit as no nomination was made by the deceased depositor. As per RBI instructions, no interest is payable on NRE Fixed deposit, if the account is held for less than a period of 12 months. However, according to the complainant, the bank manager had informed them that they would get the interest even if the FDA/c was closed prematurely. After submitting all the required documents by the legal heirs, the bank prematurely closed the FDA/c and credited the amount to the accounts of the legal heirs without informing them about the total amount they would be receiving. The complainant’s allegation was that when they received the proceeds only they realised that no interest was paid and therefore lost around ₹.4.00 lakh. The complainant gave a complaint to the bank for which she did not receive any reply. Hence, she approached the Banking Ombudsman.

On taking up the matter with the bank, BO found that the bank had not incorporated any clause in the original account opening form of the NRE fixed deposit to the effect that, in the event of death of the depositor, premature withdrawal of the FD will be allowed. Also no specific mandate was obtained from the depositor during his life regarding payment of deposit before maturity. Hence the bank, by allowing premature withdrawal of FD after the death of the depositor, had violated Reserve Bank’s regulatory instructions (para 20.3 of MC on Customer Service in Banks dated July 01, 2015 “In the case of term deposits, banks are required to incorporate a clause in the account opening form itself to the effect that in the event of the death of the depositor, premature termination of term deposits would be allowed. The conditions subject to which such premature withdrawal would be permitted may also be specified in the account opening form. Such premature withdrawal would not attract any penal charge”. Further, it was also observed that the bank had not issued any letter to the legal heirs of the depositor at the time of the refund of the proceeds of FD, stating that they would be foregoing the interest amount if the FD was prematurely withdrawn before one year, thereby not allowing the legal heirs to make an informed choice/decision in the matter of premature withdrawal and thus resulting in loss to the legal heirs.

Therefore, to compensate the legal heirs, the BO directed the bank to pay interest at savings bank account rate of interest for the deposit amount from the date of deposit to the date till it was placed with the bank and also without charging any penalty for premature withdrawal.

12. Fraudulent transaction through Internet banking -bank failed to adhere to DPSS, CO instructions

The case refers to the fraudulent withdrawal of ₹90,500.00 from complainant’s account with bank through internet banking. The complainant alleged that no SMS alerts for the thirty two fraudulent transactions that had taken place from 12.01.2015 to 14.01.2015 were sent to him. On examination, it was found that the bank had failed to put in place a mechanism for velocity check on the number of transactions effected per day/per beneficiary as per guidelines framed in circular DPSS (CO) PD No. 1462/02.14.003 / 2012-13, wherein suspicious operations should be subjected to alert within the bank and to the customer. In view of the above, the Office advised the bank to refund the disputed amount of ₹90, 500.00 to the customer. The bank complied with BO’s direction.

13. Loss of cheque sent for collection- compensation by banks

The complainant presented a cheque dated 23.12.2013 for ₹35,000.00 through Bank A which was drawn on Bank B, and he alleged that he had not received the credit and that his bank had not given any reply to his letters /follow-up.

When Bank A belatedly followed up the case with Bank B after a year with a letter seeking the fate of the cheque sent for collection, the bank B had replied that it had returned the cheque immediately on its dishonor as the party’s account with Bank B was closed in the year 2006 itself. There was no evidence of return of cheque by Bank B to Bank A , and Bank A declared that the cheque was not returned to them. The party contended that had he received the cheque from Bank A with the intimation of closure of the account and dishonor, he would have proceeded legally for his dues with the drawer of the cheque.

The BO ruled that, though the cheque had been lost, the remedy to the customer could not be denied and that both banks should provide documentary support for the receipt of the cheque at their ends if the party intended a legal remedy. The BO also ruled that both the banks should compensate the customer as per their internally laid down polices for negligence at either end and also for the loss of cheque and non-communication of the fate of cheque to the customer within reasonable time. Further, both banks were directed to provide documentary support to the complainant to enable him to pursue legal remedies.

14. Deficiency on the part of the bank in updating CIBIL records

The complaint pertained to inordinate delay on the part of the bank in updating the CIBIL records and zeroing the credit card account even after receiving the settled amount of ₹23,000.00 in July 31, 2009. After our intervention, the bank zeroised the credit card account in their records on 20.11.2015 and also initiated the processing of updating the details of card account as “Settled” from August 2009 till date. The BO mediated the case and in consultation with the bank, an amount of ₹10,000.00 was decided as the appropriate compensation for the deficiency (as the bank’s internal compensation policy did not include compensation for such deficiencies). The bank compensated the complainant with an amount ₹10,000.00 as per BO’s orders for the deficiency in service.

15. Debiting of account for failed online transaction

The complaint was regarding debiting of account for failed online transaction towards remitting of examination fee. Due to an online glitch, the customer could not complete the application process for admission and the party had informed the bank well in advance that the fee should be remitted by Feb 10, 2016.However, on account of the glitch at the bank’s end there was a failure to remit the fee in time. The transaction was completed by the bank only on Feb 15, 2016. Meanwhile the customer remitted the fee through another account. On requesting the bank for a refund, customer was advised to approach the institution to which the fee was remitted. The bank’s action of debiting the customer’s account when the primary glitch occurred at the bank, was considered as unfair.

The bank was directed to restore the amount to the customer’s account and pay him a token compensation of ₹ 200.00 as per its internal compensation policy, considering that the onus of the payment glitch could not be passed on to the customer. The bank complied with BO’s direction and credited the disputed amount of ₹ 2817.00 and the token compensation of ₹ 200.00 to the party’s account.