Most Asked — Every Year Q2Securities for Advances — Kinds & Precautions
Most Asked — Every Year Q3Banking Ombudsman — Powers, Functions & Grounds of Rejection
Most Asked — Every Year Q4E-Banking — Services & Recent Trends
Most Asked — Every Year Q5DRT & SARFAESI Act — Jurisdiction, Powers & Functions
Important — Asked Multiple Times
- Safety: Most important principle — bank must ensure money goes to right borrower for intended purpose and will be repaid with interest. Depends on nature of security, character and financial health of borrower
- Liquidity: Bank lends public money repayable on demand — must ensure loan is not locked up for long. If loan becomes illiquid, bank cannot meet depositor obligations
- Purpose: Loan purpose must be productive — helps determine risk level and interest rate. Short-term productive loans are ideal
- Diversity / Risk Spread: "Don't put all eggs in one basket" — lend across different trades, industries (agriculture, IT, pharma, education). Surplus lending to one sector is risky during slumps
- Profitability: Banks must earn profit after expenses (rent, salaries, depreciation, bad loans provision). Lending rate must be competitive yet profitable
- Security: Acts as insurance against default — banker takes security to provide against unexpected changes. Security must be adequate and easily realizable
- Priority Sector Lending (PSL): RBI mandates 40% of ANBC for priority sectors — 18% for agriculture (8% for small/marginal farmers), 10% for weaker sections. Government schemes: PMMY, PMAY-U, DAY-NRLM, DRI Scheme
- General Precautions: Verify borrower's character, goodwill, business integrity; check repayment capacity; ensure productive purpose; take adequate and realizable security; spread advances distribution; keep ready cash for depositors
| Provision / Guideline | Content |
|---|---|
| RBI PSL Guidelines | 40% of ANBC or Credit Equivalent of OBE for priority sectors — 18% agriculture, 10% weaker sections |
| PMMY (Mudra Yojana) | Loans up to Rs. 10 lakh for micro/small business units — manufacturing, processing, trading, services |
| DRI Scheme | Finance up to Rs. 15,000 at concessional 4% interest to weaker sections for productive activities |
| Section 21, BR Act | RBI can determine policy for advances by banking companies — interest rate, purpose, security |
- Mnemonic — SLPDPS + N: Safety, Liquidity, Purpose, Diversity, Profitability, Security + National interest
- Safety: Right borrower + right purpose + repayment assured
- Liquidity: Short-term, not locked up — depositors' money repayable on demand
- Purpose: Productive = safe; unproductive = risky
- Diversity: "Don't put all eggs in one basket" — spread across sectors
- Profitability: Must cover expenses + earn surplus at competitive rates
- Security: Insurance against default — adequate + realizable
- PSL: 40% ANBC → 18% agriculture (8% small farmers) → 10% weaker sections
- Schemes: PMMY (up to 10L), PMAY-U (housing), CSIS (education 7.5L), DRI (15K at 4%)
- Precautions: Character, capacity, capital, collateral, conditions (5 Cs of Credit)
Banks deal with public money and must follow principles of sound lending to ensure safety and profitability.
Key Principles: (1) Safety — most important; ensure money goes to right borrower for intended purpose. (2) Liquidity — money must not be locked up; repayable on demand since deposits are short-term. (3) Purpose — must be productive; determines risk and interest rate. (4) Diversity — spread risk across industries and sectors ("don't put all eggs in one basket"). (5) Profitability — bank must earn profit after covering expenses. (6) Security — collateral as insurance against default; must be adequate and realizable.
Priority Sector Lending: RBI mandates 40% of ANBC for priority sectors — 18% agriculture, 10% weaker sections. Government schemes include PMMY (loans up to Rs. 10 lakh), PMAY-U (housing), DRI (Rs. 15,000 at 4% interest).
General Precautions: Verify borrower's character, goodwill, business integrity, repayment capacity; ensure productive purpose; take adequate security; spread advances across sectors; keep ready cash for depositors; follow national interest and state policy.
Introduction
Lending is one of the most important functions performed by commercial banks and is the major source of income. Banks deal with public money — they accept deposits and lend to borrowers to earn profit. Since borrowers differ in terms of purpose, activities, financial health, and repayment capacity, banks follow certain fundamental principles of sound lending to ensure safety, security, and profitability of the funds they lend.
Principles of Sound Lending
1. Safety
Safety is the most important fundamental principle of lending. Banks deal with public money, so safety of depositors' funds is the first priority. When a banker lends, he must ensure that the money is in safe hands and will definitely come back at regular intervals as per the repayment schedule without any default. Safety of funds depends on the nature of security, character of borrower, repayment capabilities, and financial health. The banker must ensure that finance goes to the right type of borrower and is used for the intended purpose, and after utilization, it is repaid with interest.
2. Liquidity
Liquidity is as important as safety. Since a bulk of bank deposits are repayable on demand or at very short notice, banks must lend for short periods. The borrower must be able to repay the loan within a reasonable time after demand for repayment is made. If a loan becomes illiquid (locked up for long), it may not be possible for the banker to meet obligations towards depositors.
3. Purpose
The underlying purpose for which a loan is sought should be productive. The purpose determines the level of risk and also impacts the interest rate. Productive purpose ensures safety of funds while short-term productive loans ensure both safety and liquidity. Unproductive loans must be discouraged as they carry higher risk of non-repayment.
4. Diversity / Risk Spread
"Do not put all eggs in one basket" — banks follow this principle while creating their advances portfolio. Risk is always present in lending, so to minimize it, banks should lend to borrowers from different trades and industries — agriculture, IT, pharma, education, manufacturing, etc. Lending surplus to a particular sector may have adverse effect during a slump in that sector. The banker must also follow diversity in investment portfolio — invest in different shares and debentures of different industries.
5. Profitability
Banks incur expenses like rent, stationery, salaries, provision for depreciation, and bad loans. After incurring such expenditures, a bank must earn some profit like other financial institutions. The banker must extend advances in such a way that they are profitable for the bank and also at a competitive lending rate.
6. Security
A banker should avoid lending without security. Security acts as insurance against default. The banker carefully scrutinizes all aspects of an advance before granting it, but also provides for unexpected changes in circumstances that may affect safety and liquidity. It is to provide against such contingencies that security is taken so that the banker may realize it and reimburse himself if the expected source of repayment unexpectedly fails.
Lending to Priority Sectors
As per RBI guidelines on Priority Sector Lending (PSL), a target of 40% of Adjusted Net Bank Credit (ANBC) has been mandated for domestic Scheduled Commercial Banks. Sub-targets include:
- Agriculture: 18% of ANBC (with 8% for Small and Marginal Farmers)
- Weaker Sections: 10% of ANBC
- Housing: Loan limits revised to Rs. 35 lakh in metropolitan centres, Rs. 25 lakh in other centres
Government Schemes:
- Pradhan Mantri Mudra Yojana (PMMY): Loans up to Rs. 10 lakh for micro/small business units
- Pradhan Mantri Awas Yojana – Urban (PMAY-U): Housing assistance to EWS/LIG urban poor
- Central Sector Interest Subsidy Scheme (CSIS): Full interest subsidy on education loans up to Rs. 7.50 lakh
- DAY-NRLM: Interest subvention for women SHGs, loans up to Rs. 3 lakh at 7% per annum
- DRI Scheme: Finance up to Rs. 15,000 at concessional rate of 4% per annum to weaker sections
General Precautions of Lending
- Character and Integrity: Verify the borrower's goodwill, business integrity, and track record before lending
- Repayment Capacity: Assess the borrower's ability to repay — income, cash flow, existing obligations
- Productive Purpose: Advance loans only for productive purposes that generate income for repayment
- Adequate Security: Obtain security that is adequate, easily valuable, and readily realizable without loss or delay
- Advance Distribution: Spread advances across large number of borrowers and areas to minimize risk of concentrated loss
- Ready Cash: Keep sufficient cash reserves to meet depositor demands based on daily experience
- National Interest: Follow state policy and RBI directives — lend to priority sectors including agriculture and small business as directed
- Proper Documentation: Ensure all loan documents, hypothecation agreements, and mortgage deeds are properly executed
Conclusion
The principles of sound lending form the foundation of prudent banking practice. By adhering to safety, liquidity, purpose, diversity, profitability, and security, banks protect both depositors' interests and their own financial health. RBI's priority sector lending guidelines further ensure that banking credit reaches the weaker and underprivileged sections of society, fulfilling the social objectives of banking.
- Land / Immovable Property: Valid security but not preferred — time-consuming document verification, difficulty in valuation, not readily realizable. With diversification, increasingly accepted
- Goods: Oldest form (2/3 of secured advances). Merits: easily valuable, easily liquidable. Demerits: difficult to store, risk of fraud (quality/quantity), deterioration, price fluctuation, excess transport charges
- Documents of Title: Bills of lading, railway receipts. Merits: reliable, convenient, easy to transfer. Demerits: non-negotiable so transferee not in better position; risk of alteration and fraud
- Stock Exchange Securities: Shares, debentures, government securities. Merits: easy title verification, easy market value, readily marketable, earns interest/dividend. Demerits: partly paid shares risk, private company shares not transferable, price fluctuation, fake certificate risk
- Life Insurance Policies: Merits: tangible, guaranteed surrender value, easy to ascertain and realize, no price fluctuation risk. Demerits: no guarantee of regular premium payment, possibility of bad faith, lack of insurable interest
- Gilt-Edged/Gold-Edged Securities: Government securities — safest investment, fixed interest, readily marketable, easy transfer. Disadvantage: lower returns compared to private securities
- Precautions for Goods: Verify quality and quantity; ensure proper storage and insurance; check ownership documents; regular inspection; adequate margin for price fluctuation; proper hypothecation/pledge agreement
- Precautions for Immovable Property: Verify title deeds for at least 30 years; ensure property is free from encumbrances; get proper valuation by approved valuers; register mortgage deed; ensure property is insured; verify zoning and land-use permissions
- 5 Types: Land, Goods, Documents of Title, Stock Exchange Securities, Life Insurance Policies
- Land: Valid but not preferred — document verification + valuation + illiquid
- Goods: Oldest (2/3 advances) — easy value/liquidation BUT fraud, deterioration, price fluctuation
- Docs of Title: Reliable + convenient BUT non-negotiable + alteration risk
- Stock Exchange: Easy title + marketable + interest/dividend BUT price fluctuation + fake certificates
- LIC Policies: Tangible + guaranteed surrender value + no price risk BUT premium default risk
- Gilt-edged: Government securities — safest, fixed interest, lower return
- Goods precautions: Quality/quantity check, storage, insurance, ownership docs, regular inspection, margin for price drop
- Immovable property precautions: Title verification (30 years), encumbrance check, approved valuation, registered mortgage, insurance, zoning clearance
- Pledge vs Hypothecation: Pledge = possession with bank; Hypothecation = possession with borrower (bank has charge)
Bank advances are backed by securities — insurance against default. Securities may be personal or tangible, primary or collateral.
Kinds: (1) Land/Immovable Property — valid but not preferred (time-consuming verification, valuation difficulty, not readily realizable). (2) Goods — oldest form (2/3 of advances); easily valuable and liquidable, but risk of fraud, deterioration, price fluctuation. (3) Documents of Title — bills of lading, railway receipts; reliable but non-negotiable. (4) Stock Exchange Securities — easy title, marketable, earn dividend; but price fluctuation and fake certificate risks. (5) Life Insurance Policies — tangible, guaranteed surrender value, no price fluctuation; but risk of premium default.
Precautions for Goods: Verify quality/quantity, ensure proper storage and insurance, check ownership documents, regular inspection, maintain adequate margin.
Precautions for Immovable Property: Verify title deeds (30 years minimum), check for encumbrances, get approved valuation, register mortgage deed, ensure insurance, verify land-use permissions.
Introduction
The advances and loans allowed by banks are backed up by securities to cover the bank in the event of default. If adequate securities are held by the bank and the advance goes bad due to unforeseen circumstances, losses can be made up by disposal of securities. Securities may be personal (guarantee of a third party) or tangible (physical assets), and primary (directly related to the loan purpose) or collateral (additional security).
Kinds of Securities for Advances
1. Land (Immovable Property)
Land is an immovable property including benefits arising out of land and things attached to the earth. An advance against land is not self-liquidating in nature and exposes the lending banker to difficulties.
Reasons bankers do not prefer land:
- Lot of time to be spent for verification of title documents
- Difficulty in accurate valuation
- Not readily realizable — sale is time-consuming
However, with the diversification of bank finance, land and buildings are increasingly accepted as valid security, especially for housing and real estate loans.
2. Goods
This is the oldest form of lending, consisting of approximately two-thirds of total secured advances.
Merits: (1) Easily valuable — market price readily ascertainable; (2) Easily liquidable — can be sold quickly in the market.
Demerits: (1) Difficult to store properly; (2) Risk of fraud regarding quality and quantity; (3) Risk of deterioration in perishable goods; (4) Price fluctuation affecting margin; (5) Excess transport charges.
3. Documents of Title
These are documents drawn against goods — examples include bills of lading, railway receipts, warehouse receipts, etc.
Merits: Reliable security, convenient to handle, easy to transfer.
Demerits: Risk of borrower obtaining delivery through other means; being non-negotiable, transferee is not in a better position; chance of alteration of number of packages and value; risk of fraud regarding contents.
4. Stock Exchange Securities
Shares, debentures, and government securities traded on stock exchanges.
Merits: (1) Easy to ascertain title; (2) Easy to ascertain market value; (3) Government and good company securities are in demand; (4) Readily marketable; (5) Easy to transfer; (6) Earns interest or dividend; (7) Simple formalities for charge with less expenses.
Demerits: (1) Difficulty with partly paid shares (liability for uncalled capital); (2) Right of lien complications; (3) Market value difficult if not quoted on stock exchange; (4) Private company shares not freely transferable; (5) Price fluctuation risk; (6) Chance of producing fake certificates.
5. Life Insurance Policies
Loans can be obtained by pledging LIC policies as security for advances.
Merits: (1) Tangible security; (2) Guarantee of surrender value; (3) Easy to ascertain value; (4) Easy to realize; (5) Easy to assign in favour of banker; (6) No risk of price fluctuation.
Demerits: (1) No guarantee of regular payment of premium by borrower; (2) Possibility of not entering contract in good faith; (3) Risk of lack of insurable interest.
Precautions While Lending Against Goods
- Verify Ownership: Ensure the borrower has clear title and goods are not already pledged elsewhere
- Quality and Quantity: Conduct thorough physical inspection to verify both quality and quantity of goods
- Storage: Ensure proper warehousing arrangements — godowns must be secure, accessible for inspection, and suitable for the type of goods
- Insurance: Insist on comprehensive insurance covering fire, theft, and natural calamities — policy assigned to bank
- Regular Inspection: Conduct periodic surprise inspections to check condition and quantity
- Margin: Maintain adequate margin (difference between value of goods and loan amount) to account for price fluctuation
- Perishability: Avoid lending against highly perishable goods; if necessary, keep shorter loan tenure
- Documentation: Execute proper hypothecation/pledge agreement with detailed inventory of goods
Precautions While Lending Against Immovable Property
- Title Verification: Examine title deeds for at least 30 years to ensure clear and marketable title
- Encumbrance Certificate: Obtain encumbrance certificate from Sub-Registrar's office to ensure property is free from prior charges
- Valuation: Get property valued by approved valuers — both current market value and forced sale value
- Registration: Register the mortgage deed at the Sub-Registrar's office to perfect the security
- Insurance: Insist on building insurance against fire and natural calamities
- Zoning: Verify land-use permissions and ensure no violation of building regulations or municipal laws
- Physical Inspection: Conduct site visit to verify actual boundaries, condition of property, and surrounding developments
- Legal Opinion: Obtain opinion from the bank's legal adviser on the validity of title and enforceability of mortgage
Conclusion
Different kinds of securities serve different lending purposes. While goods and stock exchange securities offer liquidity, immovable property provides long-term value stability. The banker must exercise caution by verifying ownership, maintaining adequate margins, ensuring insurance, and conducting regular inspections to protect the bank's interests in the event of borrower default.
- Definition: Banking Ombudsman is a quasi-judicial authority appointed by the RBI to resolve customer complaints against banks for deficiency in banking services — free of cost to the complainant
- Appointment: Senior official of RBI, not below rank of Chief General Manager — appointed for 3 years, extendable by RBI
- Jurisdiction: Covers all commercial banks, regional rural banks, scheduled primary cooperative banks, and NBFCs (under Integrated Ombudsman Scheme, 2021)
- Grounds for Complaint: Non-payment/delay in cheque collection; non-acceptance of small denomination notes/coins; non-adherence to fair practices code; levy of charges without prior notice; delay in credit/remittances; complaints related to credit cards, ATMs, internet banking, mobile banking; non-observance of RBI guidelines on loans and advances
- Pre-condition for Filing: Complainant must first approach the bank — if bank rejects or doesn't reply within 30 days, then approach Ombudsman
- Powers: (a) Receive and consider complaints; (b) Facilitate settlement through mediation/conciliation; (c) Pass awards — up to Rs. 20 lakh including compensation up to Rs. 1 lakh for mental agony
- Procedure: Complaint in writing or online → Ombudsman verifies → calls for bank's reply → attempts settlement → if no settlement, passes award within 1 month
- Grounds for Rejection: (1) Complainant has not approached bank first, or less than 30 days since bank reply; (2) Complaint filed after 1 year from bank's response; (3) Subject matter is pending before any court, tribunal, or consumer forum; (4) Previously settled or dealt with by Ombudsman; (5) Complaint is frivolous, vexatious, or not bona fide; (6) Complaint does not fall within specified grounds
- Award: Binding on bank if complainant accepts within 30 days; bank must comply within 30 days of acceptance
- Appeal: Against Ombudsman's award, appeal lies to Appellate Authority (Deputy Governor of RBI) within 30 days — can extend by further 30 days
| Provision | Content |
|---|---|
| S.35A, BR Act | RBI empowered to issue directions to banking companies — basis for Ombudsman Scheme |
| BO Scheme 2006 | Banking Ombudsman Scheme (replaced 1995 scheme) — grounds for complaints, powers, procedures |
| Integrated Ombudsman Scheme, 2021 | Merged three ombudsman schemes (banking, NBFC, digital transactions) into one — "One Nation, One Ombudsman" |
| Clause 8 | Grounds on which complaints may be filed — non-payment, delays, charges, loan matters, digital banking |
| Clause 13 | Grounds for rejection of complaints — time bar, pending proceedings, previously settled, frivolous |
- Banking Ombudsman: Quasi-judicial, appointed by RBI, CGM rank+, 3-year tenure
- Cost: FREE for complainant — no fees or charges
- Pre-condition: Approach bank first → wait 30 days → then Ombudsman
- Award limit: Rs. 20 lakh (+ Rs. 1 lakh compensation for mental agony)
- Grounds: Cheque delays, charges without notice, loan complaints, ATM/card/internet banking issues, fair practices violation
- Rejection (mnemonic — TFPCY): Time-barred (1 year), Frivolous/vexatious, Pending in court, Complainant didn't approach bank first, Yet to get 30-day bank reply
- Appeal: To Deputy Governor RBI within 30 days (+30 days extension)
- 2021 Update: Integrated Ombudsman Scheme — merged banking + NBFC + digital payment schemes → "One Nation, One Ombudsman"
- Filing: Written complaint or online via CMS Portal (cms.rbi.org.in)
- Bank compliance: 30 days from complainant's acceptance of award
The Banking Ombudsman is a quasi-judicial authority appointed by the RBI under the Banking Ombudsman Scheme to resolve customer complaints against banks — free of cost. Appointed from senior RBI officials (CGM rank), 3-year tenure.
Powers: Receive complaints; facilitate settlement through mediation/conciliation; pass awards up to Rs. 20 lakh (+ Rs. 1 lakh compensation for mental agony). Award binding on bank if accepted by complainant within 30 days.
Grounds for Complaint: Non-payment/delay in cheques; levy of charges without notice; credit card/ATM/internet banking issues; non-adherence to fair practices code; delays in loans and advances; non-observance of RBI guidelines.
Pre-condition: Must first approach the bank; if bank rejects or doesn't respond within 30 days, then approach Ombudsman.
Grounds for Rejection: (1) Not approached bank first or before 30-day reply period; (2) Filed after 1 year from bank's response; (3) Matter pending before court/tribunal/consumer forum; (4) Previously settled by Ombudsman; (5) Frivolous or vexatious; (6) Outside specified grounds.
Appeal: To Appellate Authority (Deputy Governor, RBI) within 30 days.
Introduction
The Banking Ombudsman is a quasi-judicial authority appointed by the Reserve Bank of India to address and resolve complaints from customers against banks for deficiency in banking services. The scheme was first introduced in 1995, revised in 2006, and has now been replaced by the Integrated Ombudsman Scheme, 2021 which merged the Banking Ombudsman Scheme, the Ombudsman Scheme for NBFCs, and the Ombudsman Scheme for Digital Transactions into a single unified framework — "One Nation, One Ombudsman."
Appointment and Tenure
The Banking Ombudsman is a senior official of the Reserve Bank of India, not below the rank of Chief General Manager. The appointment is made by the RBI for a period of 3 years, which may be extended at the discretion of the RBI. The Ombudsman's office operates at various locations across the country as designated by the RBI.
Jurisdiction
The Banking Ombudsman has jurisdiction over:
- All commercial banks (public sector, private sector, and foreign banks)
- Regional Rural Banks
- Scheduled Primary Cooperative Banks
- NBFCs (under the Integrated Ombudsman Scheme, 2021)
Powers and Functions
A. Receiving Complaints
The Ombudsman receives complaints from bank customers on specified grounds. Complaints can be filed in writing or through the online CMS Portal (cms.rbi.org.in). The service is completely free of cost to the complainant.
B. Grounds for Complaint
A customer may file a complaint on the following grounds:
- Cheque/Draft/Remittance: Non-payment or inordinate delay in payment or collection of cheques, drafts, bills
- Small Denominations: Non-acceptance of small denomination notes and coins without sufficient cause
- Charges: Levying of charges without adequate prior notice to the customer
- Fair Practices Code: Non-adherence to prescribed banking codes and standards
- Loans and Advances: Delay in sanctioning, disbursement, or non-observance of RBI directives on interest rates and processing
- Credit Cards: Non-adherence to instructions regarding issuance, billing, charges, and grievance redressal
- ATM/Debit Card: Non-credit of account for failed ATM transactions within stipulated time
- Internet/Mobile Banking: Unauthorized electronic banking transactions, failure to credit refunds, service disruptions
- Deposits: Non-payment of deposits or non-observance of prescribed interest rates
- Pension: Delay or non-payment of pension to account holders
C. Settlement and Award
The Ombudsman, upon receiving a complaint:
- Verifies that the complaint falls within jurisdiction and specified grounds
- Calls for the bank's response and comments
- Attempts to facilitate settlement through mediation and conciliation
- If settlement fails, passes an award based on evidence and submissions
Award Limits:
- Maximum award amount: Rs. 20 lakh
- Additional compensation for loss of time, expenses, harassment, and mental agony: up to Rs. 1 lakh
- Award must be passed within 1 month from the date of receipt of the bank's comments
- Award is binding on the bank if accepted by the complainant within 30 days
- Bank must comply within 30 days of the complainant's acceptance
Pre-condition for Filing Complaint
Before approaching the Ombudsman, the complainant must:
- First make a written complaint to the concerned bank
- Wait for the bank's response — if the bank rejects the complaint or does not respond within 30 days, then the complainant may approach the Ombudsman
- The complaint to the Ombudsman must be filed within one year from the date of the bank's reply (or from the date of expiry of 30 days if no reply)
Grounds for Rejection of Complaint
The Banking Ombudsman may reject a complaint at any stage if:
- No prior approach to bank: The complainant has not first made a complaint to the concerned bank, or the 30-day period for the bank's response has not expired
- Time-barred: The complaint is made after one year from the date the complainant received the bank's reply or from the expiry of the 30-day period
- Pending proceedings: The subject matter of the complaint is already pending before or has been dealt with by any court, tribunal, arbitrator, or consumer forum
- Previously settled: The complaint has already been settled or dealt with at any previous occasion by the Banking Ombudsman
- Frivolous or vexatious: The complaint is frivolous, vexatious, or not made in good faith
- Outside grounds: The complaint does not fall within the specified grounds enumerated in the Scheme
- Inadequate loss: The compensation sought is beyond the jurisdiction of the Ombudsman (exceeds Rs. 20 lakh)
Appeal
Any person aggrieved by an award or decision of the Banking Ombudsman may prefer an appeal before the Appellate Authority. The Appellate Authority is the Deputy Governor of the RBI. The appeal must be filed within 30 days from the date of the award, extendable by a further 30 days if sufficient cause is shown.
Integrated Ombudsman Scheme, 2021
The RBI launched the Integrated Ombudsman Scheme on November 12, 2021, merging three separate ombudsman schemes into one. Key features:
- "One Nation, One Ombudsman" — single point of reference for all complaints
- Covers banks, NBFCs, and digital payment service providers
- Complaint can be filed for any deficiency in service — the earlier scheme had a defined list of grounds, the new scheme has an open-ended approach
- Centralized processing centre at RBI, Chandigarh
- Online filing through the CMS Portal (cms.rbi.org.in)
Conclusion
The Banking Ombudsman is a vital institution for protecting consumer interests in banking. It provides a free, speedy, and effective mechanism for resolving disputes between banks and their customers without the cost and delay of court proceedings. The Integrated Ombudsman Scheme, 2021 has further strengthened this mechanism by providing a unified platform for all financial sector complaints.
- E-Banking: Banking using electronic means — provides financial services through internet, telephone, or electronic delivery channels. Benefits: convenience, speed, transparency, 24/7 access
- RTGS (since March 2004): Real Time Gross Settlement — maintained by RBI for inter-bank fund transfer. Money reaches beneficiary instantly. For high-value transactions (minimum Rs. 2 lakh)
- EFT/NEFT: Electronic Funds Transfer — customer gives instructions to bank with complete details (name, account number, bank, branch). NEFT operates in half-hourly batches; 24/7 NEFT launched in 2019
- ECS: Electronic Clearing Service — for bulk payments/receipts (salary, pension, dividend, EMI). Repetitive small amount payments. Two variants: ECS Credit (one-to-many) and ECS Debit (many-to-one)
- ATM: Automatic Teller Machine — 24/7 banking. Cash withdrawal, balance enquiry, mini-statement, fund transfer, bill payment, cheque/cash deposit. Customers need ATM/debit card
- Internet Banking: Access banking services online — fund transfer, bill payment, account management, loan applications. Secured through encryption, OTP, and multi-factor authentication
- Mobile Banking: Banking through smartphone apps — subset of internet banking. IMPS for instant transfers. UPI (Unified Payments Interface) revolutionized mobile payments
- Point of Sale (POS) Terminals: Computer terminal linked to bank's customer files — customer's account debited and retailer's account credited for purchase amount. Debit/credit card swipe machines at merchant locations
- Cards: Credit card (buy now, pay later); Debit card (deducted from account); Smart card (chip-based, stored value); Traveller's cheques (pre-paid, safe for travel)
- Challenges: Security (hacking, identity theft); lack of awareness in rural areas; infrastructure gaps; customer reluctance; technological obsolescence; high investment for small banks; need for IT security policies
- E-Banking services (mnemonic — REAN-MIPT): RTGS, EFT/NEFT, ATM, ECS — Mobile Banking, Internet Banking, POS, Tele Banking
- RTGS: Real-time, instant, high-value (min Rs. 2L), by RBI since 2004
- NEFT: Half-hourly batches → 24/7 since Dec 2019
- ECS: Bulk payments — ECS Credit (salary/pension) + ECS Debit (EMI/bills)
- ATM: 24/7 — withdrawal, balance, mini-statement, transfer, deposit
- Internet Banking: Online — transfer, bills, loans, investments. Secured: encryption + OTP
- Mobile: App-based + UPI (game changer) + IMPS (instant)
- POS: Card swipe at retail — customer debited, retailer credited
- Cards: Credit (post-paid), Debit (pre-paid from account), Smart (chip-stored value), Traveller's (pre-paid travel)
- Challenges: Security (hacking/identity theft) + rural infrastructure + awareness + cost for small banks
- IT Act: Information Technology Act — legal framework for e-banking; NI Act amended for e-cheque and truncated cheque
E-Banking is electronic banking — providing financial services through internet, telephone, or electronic means. After 1991 reforms, Indian banking embraced technology for efficiency and customer convenience.
Key Services: (1) RTGS — Real Time Gross Settlement for instant high-value transfers (since 2004). (2) NEFT — Electronic fund transfer in batches (24/7 since 2019). (3) ECS — Electronic Clearing for bulk payments (salary, pension, EMI). (4) ATM — 24/7 cash withdrawal, balance enquiry, fund transfer. (5) Internet Banking — online fund transfer, bill payment, account management. (6) Mobile Banking — UPI and app-based transactions. (7) POS — card swipe terminals at merchant outlets. (8) Tele Banking — banking via telephone.
Cards: Credit (buy now, pay later), Debit (from account), Smart (chip-based stored value), Traveller's cheques (pre-paid).
Recent Trends: UPI revolution, digital wallets, paperless banking, NI Act amended for e-cheque and truncated cheque, core banking solutions, information technology integration.
Challenges: Security (hacking, identity theft), lack of infrastructure in rural areas, customer awareness gaps, high cost for small banks.
Introduction
E-Banking (Electronic Banking) is a form of banking that provides financial services to individual clients through the means of internet, telephone, or other electronic delivery channels. E-Banking provides benefits to consumers in terms of ease and cost of transactions — convenience, speed, transparency, and 24/7 access.
With the reforms in 1991, the Indian banking sector witnessed unprecedented growth. Major factors include increase in retail credit demand, proliferation of ATMs and debit cards, improved macroeconomic conditions, and regulatory changes. Banks are now using electronic modes for providing better, efficient, transparent, and speedy services to customers.
E-Banking Services
1. Real Time Gross Settlement (RTGS)
RTGS was introduced in India in March 2004. It is maintained and operated by the RBI and provides a means of efficient and faster fund transfer among banks. As the name suggests, fund transfer between banks takes place on a "Real Time" basis — money can reach the beneficiary instantly. Used for high-value transactions (minimum Rs. 2 lakh).
2. Electronic Funds Transfer (EFT/NEFT)
Anyone who wants to make payment to another person can approach his bank and give instructions to transfer funds directly from his own account to the bank account of the receiver. Complete details — receiver's name, bank account number, account type, bank name, city, branch name, IFSC code — should be furnished. NEFT (National Electronic Funds Transfer) operates in half-hourly batches and has been made available 24/7 since December 2019.
3. Electronic Clearing Service (ECS)
ECS is a retail payment system used for bulk payments/receipts of a similar nature, especially where each individual payment is repetitive and of relatively smaller amount. Two variants:
- ECS Credit (one-to-many): Used by companies/government for salary payment, pension, dividend distribution, interest payment
- ECS Debit (many-to-one): Used for EMI collection, utility bill payments, insurance premiums, SIP instalments
4. Automatic Teller Machine (ATM)
ATM is the most popular device in India which enables customers to perform routine banking transactions 24 hours a day, 7 days a week without interacting with a human teller. Services: cash withdrawal, balance enquiry, mini-statement, fund transfer, bill payment, cheque/cash deposit, PIN change.
5. Internet Banking
Internet banking allows customers to access banking services through the bank's website. Services include: viewing account balance and transaction history, fund transfer (own accounts, third party, inter-bank), bill payments, loan applications, investment management, and opening fixed/recurring deposits. Secured through encryption, OTP (One Time Password), and multi-factor authentication.
6. Mobile Banking
Banking through smartphone applications — a subset of internet banking with added convenience of mobility. Key developments:
- IMPS (Immediate Payment Service): Instant inter-bank transfer through mobile
- UPI (Unified Payments Interface): Revolutionary payment system enabling instant transfers using virtual payment address (VPA)
- Apps: SBI YONO, HDFC MobileBanking, ICICI iMobile, and bank-specific applications
7. Point of Sale (POS) Terminal
A computer terminal linked online to the bank's customer information files. During a transaction, the customer's account is debited and the retailer's account is credited by the computer for the amount of purchase. Modern POS includes QR code-based payments and contactless NFC terminals.
8. Tele Banking
Tele Banking facilitates the customer to do entire non-cash related banking on telephone. Automatic Voice Recorder is used for simpler queries; manned phone terminals for complicated queries and transactions.
9. Electronic Payment Cards
- Credit Card: "Buy now, pay later" — bank extends credit up to a limit; monthly billing cycle with grace period
- Debit Card: Amount directly debited from customer's bank account at time of transaction
- Smart Card: Chip-based card with stored monetary value — can be reloaded; used for small transactions
- Traveller's Cheques: Pre-paid instruments for safe carrying of money during travel
10. Other Services
- Electronic Data Interchange (EDI): Electronic exchange of business documents — purchase orders, invoices, shipping notices
- E-Cheque: NI Act amended to include truncated cheques and e-cheques
- Lobby Banking: Self-service banking kiosks combining ATM, internet banking, and cheque drop in a dedicated lobby
- Mobile Van Banking: Bringing banking services to remote areas through mobile banking vans
Recent Trends in Banking
- Core Banking Solutions (CBS): Centralized platform where any branch is the customer's branch — all branches connected in real-time
- UPI Revolution: Unified Payments Interface has transformed digital payments in India — peer-to-peer and merchant payments through simple VPA
- Digital Wallets: Paytm, PhonePe, Google Pay — stored value wallets for instant payments
- Paperless Banking: e-KYC, digital loan processing, electronic passbooks replacing physical documents
- Information Technology Act: Provides legal framework for e-banking transactions and cyber security
Challenges
- Security: Hacking, identity theft, phishing attacks — banks must have documented IT security policies
- Rural Infrastructure: Lack of internet connectivity and digital literacy in rural areas
- Customer Awareness: Many customers still lack awareness and trust in digital banking
- Cost: Heavy investment required by small banks for technology infrastructure
- Obsolescence: Rapidly changing technology requiring continuous upgradation
Conclusion
E-Banking has revolutionized the Indian banking landscape. The combination of regulatory push (RBI directives), technological advancement, and customer demand has made electronic banking an indispensable part of modern commercial life. While challenges remain in security and rural penetration, the trajectory is firmly towards a digitally inclusive banking ecosystem.
- RDDBFI Act, 1993: Enacted to facilitate speedy debt recovery — prior to this, cases dragged on for years in civil courts. DRTs and DRATs established by Central Government
- Composition: Each DRT has a Presiding Officer; each DRAT has a Chairperson. Currently 39 DRTs and 5 DRATs across India
- Jurisdiction: Claims of Rs. 20 lakh and above (raised from Rs. 10 lakh in 2018). Bank files in DRT within whose local limits the defendant resides or carries on business
- Powers: Go beyond Civil Procedure Code; hear cross-suits, counterclaims, allow set-offs; pass interim orders restricting defendant from disposing property; appoint receivers; order conditional attachment
- Procedure: Bank files application → defendant files written statement → hearing → judgment within 30 days → Recovery Certificate within 15 days → Recovery Officer executes
- Bars other courts: No court (except Supreme Court and High Court) can adjudicate matters relating to debt recovery under this Act
- SARFAESI Act, 2002: Allows banks/FIs to recover secured debts without court intervention. Three key features: (1) Securitisation; (2) Reconstruction of financial assets through ARCs; (3) Enforcement of security interest
- SARFAESI Procedure: Loan classified as NPA (90 days overdue) → 60-day notice to borrower → if borrower fails, bank takes possession → 30-day public notice for sale → auction/private sale → recover dues → return excess to borrower
- Borrower's Rights: (1) Right to adequate notice (60 days + 30 days); (2) Right to fair valuation of assets; (3) Right to balance proceeds after recovery; (4) Right to humane treatment — recovery agents cannot harass, humiliate, or breach privacy; can visit only 7 AM - 7 PM
- Issues with DRTs: Overburdened tribunals; borrowers' delaying tactics; peripheral issues (state dues, workmen dues); courts interpreting provisions favouring debtors; less than 40 DRTs insufficient for case volume
| Provision | Content |
|---|---|
| RDDBFI Act, 1993 | Established DRTs and DRATs for speedy recovery of bank debts — claims of Rs. 20 lakh and above |
| SARFAESI Act, 2002 | Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest — recovery without court intervention |
| S.13, SARFAESI | Enforcement of security interest — 60-day notice to borrower; upon failure, secured creditor can take possession and sell assets |
| 2016 Amendments | Time limits in adjudication; Central Government empowered for uniform procedures; retirement age increase; cases filed at bank branch jurisdiction |
- DRT: RDDBFI Act 1993 — speedy debt recovery — 39 DRTs + 5 DRATs
- Jurisdiction: Rs. 20 lakh+ (raised from 10L in 2018) — bars civil courts (except SC/HC)
- DRT Procedure: Application → Written statement → Hearing → Judgment (30 days) → Recovery Certificate (15 days) → Recovery Officer executes
- DRT Powers: Beyond CPC — cross-suits, counterclaims, set-offs, interim orders, attach property, appoint receiver
- SARFAESI 2002: Recovery WITHOUT court — 3 features: Securitisation + Reconstruction (ARCs) + Enforcement of security
- SARFAESI Process: NPA (90 days overdue) → 60-day notice → take possession → 30-day public notice → sell → recover → return excess
- Borrower Rights: Notice, fair valuation, balance proceeds, humane treatment (7 AM - 7 PM only), can introduce own buyer
- Recovery Agents: Must carry ID + authorization; maintain privacy; no harassment; complaint within 30 days → banking ombudsman if not resolved
- DRT Issues: Overburdened, delaying tactics by borrowers, peripheral issues, insufficient number
- 2016 Amendments: Time limits, uniform procedures, cases at bank branch jurisdiction (not defendant's residence)
DRTs were established under the RDDBFI Act, 1993 to facilitate speedy debt recovery. Currently 39 DRTs and 5 DRATs, handling claims of Rs. 20 lakh and above.
DRT Powers: Go beyond CPC; hear cross-suits, counterclaims; pass interim orders restricting disposal of property; appoint receivers; issue Recovery Certificate executed by Recovery Officer. Judgment within 30 days; certificate within 15 days.
SARFAESI Act, 2002: Allows banks to recover secured debts without court intervention. Three features: (1) Securitisation; (2) Reconstruction through Asset Reconstruction Companies; (3) Enforcement of security interest.
SARFAESI Procedure: Loan becomes NPA (90 days overdue) → bank sends 60-day notice → borrower fails to repay → bank takes possession of secured assets → 30-day public notice for sale → auction → recover dues → return excess to borrower.
Borrower's Rights: Right to adequate notice; fair valuation of assets; balance proceeds after recovery; humane treatment by recovery agents (7 AM - 7 PM only, no harassment).
Issues: DRTs overburdened, borrowers' delaying tactics, insufficient number of tribunals nationwide.
Introduction — Background of DRTs
Bad loans and Non-Performing Assets (NPAs) are a perpetual source of trouble for banks in India. Before 1993, such cases were listed in civil courts where proceedings used to drag on for years, making recovery extremely difficult and time-consuming. To address this problem, the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993 was passed, which led to the establishment of Debt Recovery Tribunals.
Establishment and Composition
DRTs and DRATs are established by the Central Government. Each DRT consists of a Presiding Officer and each DRAT has a Chairperson — both appointed by the Central Government. Currently, there are 39 DRTs and 5 DRATs across India.
Jurisdiction
- DRTs can entertain applications from banks and financial institutions for recovery of debts due to them
- Minimum claim amount: Rs. 20 lakh (raised from Rs. 10 lakh in 2018)
- Bank files application in the DRT within whose local limits the defendant resides or carries on business
- The Act bars all other courts from adjudicating debt recovery matters — only Supreme Court and High Court retain jurisdiction
Powers and Functions
- Beyond CPC: DRTs are empowered to go beyond the Civil Procedure Code and pass comprehensive orders
- Cross-suits and Counterclaims: Can hear cross-suits, counterclaims, and allow set-offs
- Interim Orders: Can restrict the defendant from disposing or transferring property without prior assent of the Tribunal
- Conditional Attachment: May direct attachment of whole or any portion of the defendant's property
- Appointment of Receiver: May appoint a receiver and confer powers to defend suit, manage property
- Recovery Certificate: After hearing, issues Recovery Certificate to Recovery Officer for execution
- Company cases: May order sale proceeds of a company to be distributed among secured creditors
Proceedings
- Bank makes application to DRT having jurisdiction and pays required fees
- Defendant presents written statement of defence before first hearing and may set up counter-claim
- Tribunal gives both parties opportunity of being heard and may pass interim or final order
- DRT passes final judgment within 30 days from the hearing
- Issues Recovery Certificate within 15 days from date of judgment
- Recovery Officer executes the certificate as per procedure for recovery of income tax
SARFAESI Act, 2002
Background
Even after RDDBFI Act, problems persisted — lack of liquidity, asset-liability mismatch, and long-term blocking of assets. Banks could not recover dues to the extent expected. This led to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
Objectives
- Enable banks and financial institutions to recover secured debts without court intervention at the first stage
- Facilitate securitisation of financial assets
- Enable reconstruction of financial assets through Asset Reconstruction Companies (ARCs)
- Provide for enforcement of security interest by secured creditors
Key Features
- Three Pillars: (1) Securitisation; (2) Asset Reconstruction through ARCs; (3) Enforcement of Security Interest
- No Court Required: Banks can directly take possession of secured assets and sell them without approaching any court
- Asset Reconstruction Companies: Banks can transfer NPAs to ARCs which specialize in recovery and reconstruction
Procedure under SARFAESI
- Borrower's account classified as Non-Performing Asset (NPA) — repayment overdue by 90 days
- Bank issues 60-day notice to the defaulter under Section 13(2)
- If borrower fails to repay within notice period, bank can take possession of secured assets
- Bank serves 30-day public notice mentioning details of the sale — fair value, reserve price, date and time of auction
- Assets sold through auction or private sale
- Bank recovers its dues from sale proceeds
- Any excess amount after recovery is returned to the borrower
Rights of Borrowers
- Right to Adequate Notice: 60-day notice before possession + 30-day public notice before sale
- Right to Fair Valuation: Valuation by approved valuers — borrower can contest if undervalued and introduce own buyer
- Right to Balance Proceeds: Bank must refund excess amount after recovering dues
- Right to Humane Treatment: Recovery agents must carry ID and authorization; can visit only between 7 AM and 7 PM; cannot harass, humiliate, or breach privacy. Complaint to bank within 30 days; if unresolved, approach Banking Ombudsman
- Right to Get Property Back: If borrower clears all dues between repossession and sale, bank must return the property
Issues and Corrective Measures
Issues: DRTs overburdened; borrowers adopt delaying tactics through civil courts; peripheral issues (state dues, workmen's claims); courts interpret provisions favouring debtors; insufficient DRTs for case volume; DRTs not equipped for complex fraud.
2016 Amendments: Time limits in adjudication; Central Government empowered for uniform procedures; increased retirement age of Presiding Officers; cases to be filed at bank branch jurisdiction (not defendant's residence); Insolvency and Bankruptcy Code gives DRTs power over individual bankruptcy cases.
Conclusion
DRTs and the SARFAESI Act together form a robust framework for debt recovery in India. While DRTs provide a judicial mechanism for adjudication, SARFAESI empowers banks with extra-judicial enforcement of security interests. Together, they significantly reduce the time and cost of recovery, thereby strengthening the banking system's ability to manage NPAs and maintain financial stability.