Key Details
| Parameter | Detail |
| Regulated Entity (RE) | Muthoot FinCorp Limited |
| Regulatory Authority | Reserve Bank of India (RBI) |
| Penalty Amount | ₹2.70 lakh (Rupees Two Lakh Seventy Thousand only) |
| Date of Order | September 24, 2025 |
| Press Release Date | September 26, 2025 |
| Date of Inspection | Financial position as on March 31, 2024 |
| Non-Compliance Direction | Directions issued by RBI on ‘Internal Ombudsman’ |
| Specific Deficiency | Failure to establish a system of auto-escalation of complaints that were partly or wholly rejected by the company’s internal grievance redress mechanism to its Internal Ombudsman. |
| Statutory Basis | Clause (b) of sub-section (1) of Section 58G read with clause (aa) of sub-section (5) of Section 58B of the Reserve Bank of India Act, 1934. |
🔎 Root Cause Analysis (RCA)
The sustained charge against Muthoot FinCorp Limited is the failure to establish a system of auto-escalation of rejected or partially rejected complaints to its Internal Ombudsman (IO). This deficiency points to systemic gaps in regulatory compliance and internal process control:
- Systemic/Process Failure: The fundamental cause is the absence or a faulty implementation of a Complaint Management System (CMS) capable of recognizing and automatically escalating complaints that meet the mandatory criteria (partially or wholly rejected) for IO review. This suggests a manual dependency or an incomplete integration of the IO process into the primary grievance redressal workflow.
- Compliance/Policy Gap: The NBFC failed to operationalize the RBI’s clear mandate regarding the IO mechanism, which requires the entity to formulate a Standard Operating Procedure (SOP) and establish a system of auto-escalation. The timeline mandated by the RBI directions for NBFCs is typically the internal escalation to the IO within a defined timeframe, such as three weeks (20 days) from the date of the complaint.
- Lack of Control & Monitoring: There was likely a lack of effective, real-time monitoring by the senior management or the dedicated compliance/IO secretarial team to ensure that all rejected/partially rejected complaints were duly routed to the IO for independent review before being communicated to the customer as finally closed. This compromises the IO’s function as an independent reviewer at the apex of the internal grievance redressal mechanism.
🛡️ Preventive Controls
To prevent a recurrence of this non-compliance, Muthoot FinCorp Limited should implement the following preventive controls:
- Automated Escalation System:
- Implement/Upgrade the Complaint Management System (CMS): The CMS must be mandated to include a hard-coded rule where any complaint marked as “Rejected (fully)” or “Rejected (partially)” by the primary grievance redressal team is automatically tagged and transferred to the IO’s dedicated queue/system, typically within the stipulated 20-day timeframe.
- System Audit and Testing: Conduct an independent and rigorous end-to-end system audit of the CMS, specifically testing the auto-escalation logic with sample rejected cases to ensure zero bypasses.
- Robust Procedural & Policy Control:
- Mandatory SOP Formulation: Finalize and get Board-approved a comprehensive Standard Operating Procedure (SOP) for the IO mechanism, clearly defining the auto-escalation criteria, timelines, and the roles and responsibilities of the IO secretariat and the grievance redressal team.
- Mandatory Training: Provide mandatory, periodic training to all relevant customer-facing and grievance redressal staff on the updated IO policy, emphasizing that all rejected complaints must undergo the IO review process.
- Independent Oversight and Reporting:
- Independent Compliance Check: Implement a daily/weekly compliance check where the Compliance Officer or Internal Audit team verifies a sample of closed complaints to ensure that all rejected cases were reviewed and decisioned by the IO.
- Board-Level Reporting: Ensure the IO’s periodic reports (quarterly/half-yearly) to the Board’s Customer Service Committee/Consumer Protection Committee include a metric on the number of auto-escalated complaints versus the total number of rejected complaints to highlight any gaps.
🎓 Lesson Learnt
The primary lesson for Muthoot FinCorp Limited, and all other regulated entities (REs) including NBFCs, is the paramount importance of operationalizing regulatory intent into technological processes and internal culture.
The Internal Ombudsman mechanism is not a mere formality; it is a critical component of the RBI’s framework designed to strengthen internal customer grievance redressal and prevent cases of deficiency in service from escalating to the external RBI Ombudsman.
Key Takeaways:
- Regulatory Intent: Regulated entities must understand that the RBI views the IO as an independent, apex-level authority within the company’s customer service framework. Any systemic failure to engage the IO in mandatory cases is a severe breach of customer-centric governance.
- Automation is Non-Negotiable: For high-volume processes like complaint handling, manual intervention is a risk. Auto-escalation, reporting, and tracking must be technologically embedded to ensure consistent and timely compliance with the mandated process for every single eligible customer complaint.
- Compliance Culture: Compliance must be driven from the top (Board-level oversight) and monitored meticulously at the ground level, ensuring that the necessary IT infrastructure and SOPs are in place to support the independent and effective functioning of the Internal Ombudsman.