NBFC Internal Ombudsman Directions 2026: What Credit Teams Need

Why it matters for underwriters

A declined applicant can use this route. Under clause 4 of the NBFC IO Directions, 2026, a customer includes a person who is an applicant for a service, and a deficiency in service may exist with or without financial loss.

Your file may be read by someone outside the credit chain. The IO works from the NBFC’s records, the complainant’s documents and the NBFC’s answers to specific queries (clause 14(6)). The IO may also meet the functionaries concerned and ask for more records (clause 14(7)).

Patterns reach the Board. The office of the IO analyses all complaints every quarter, by cuts such as product, category, consumer group and location, and gives inputs for policy intervention where warranted (clause 12(6)). The IO also suggests action on root causes of similar or repeat complaints (clause 12(7)). A repeat complaint type in one product or geography can therefore become a policy question.

How it works

The IO does not take complaints directly from the public. The office only sees complaints the NBFC has already examined and partly resolved or wholly rejected (clause 12(1)). The NBFC must not publish the IO’s or Deputy IO’s (Dy. IO’s) contact details (clause 14(17)).

Only the Competent Authority, meaning the Executive Director, Managing Director or Chief Executive Officer, can overrule an IO or Dy. IO decision. Every such case goes to the Board for review (clauses 4(1)(a), 13(3), 13(4)). If a complainant then approaches the RBI Ombudsman, the Consumer Education and Protection Department may review the case (clause 15(2)).

The IO or Dy. IO recommends compensation as prescribed by RBI, or under the NBFC’s compensation policy if RBI prescribes none. The IO may also recommend compensation under the Integrated Ombudsman Scheme for consequential loss, loss of time, expenses and harassment or mental agony (clauses 12(4), 12(5)).

The NBFC reports to RBI quarterly, on or before the 15th day of the month after the quarter (clause 16(2)). Internal Audit reviews implementation annually, but does not assess whether IO decisions were correct (clause 11).

India specifics

The NBFC IO Directions, 2026 apply by lender, not by product. The test date is March 31, 2025 (clause 3(1)).

So a home loan from a Housing Finance Company sits outside these Directions, while a home loan from a covered NBFC does not.

The IO must be a retired or serving officer of General Manager equivalent rank at a regulated entity under the IO framework or a financial sector regulator, with at least seven years of relevant experience. A serving officer gives up that post first. The IO must never have worked for the NBFC or its holding, associate or subsidiary company, and must not be over 70 before the tenure ends (clause 5). The Dy. IO test is Deputy General Manager equivalent rank and at least five years (clause 6).

The term is contractual and fixed at not less than three years, with total tenure capped at five (clause 8). In a rare case where every IO and Dy. IO is absent, the NBFC may designate a serving General Manager equivalent official as IO for up to one month, with Board approval and no reporting line to business verticals during that period (clause 8(3)).

Some complaints are outside the IO’s purview (clause 14(5)):

• Corporate fraud or misappropriation by the NBFC that does not affect the customer.
• Suggestions and commercial decisions of the NBFC. Service deficiencies in commercial decision cases remain valid complaints.
• Internal administration, human resources, and staff pay and emoluments.
• Matters decided by or pending before courts, consumer commissions, arbitration or similar fora.
• Disputes with a remedy under Section 18 of the Credit Information Companies (Regulation) Act, 2005.

The text does not say whether a credit decline counts as a commercial decision. It does say the NBFC must forward rejected or partly resolved complaints in the first two categories to the IO or Dy. IO, who looks for inherent service deficiency and takes a view on the exemption.

Worked example, made-up numbers

First, scope, using invented lenders as on March 31, 2025.

Next, the clock. An applicant for an MSME term loan at Lender A complains of no reply to repeated status requests before a decline. No RBI, NPCI or card network timeline is assumed.

Escalating on day 20 instead would have left 10 days for the IO’s review and the reply together.

Pitfalls

• Treating commercial decision as an exit. Under clause 14(5) the IO or Dy. IO takes the view on these complaints. The credit or complaints team does not settle it alone.
• Sending only full rejections. Partly resolved complaints go to the IO too (clause 14(1)).
• Adding status labels. Clause 14(2) allows three outcomes. Only complaints under clauses 14(5)(c) to 14(5)(e) are exempt from that classification.
• Closing at the unit that received it. Clause 14(4) applies to resolved complaints as well as rejected ones.
• Reading the Directions across lender types. A Housing Finance Company is excluded here, so do not apply this text to it.
• Assuming one level for senior review. The NBFC decides the level, so it varies by institution.

Checklist

The first four items are general working practice, not requirements of the Directions.

• The decline or condition is recorded with a reason a reader outside credit can follow.
• Status requests and replies to the applicant can be traced in the record.
• You know who in your NBFC sends credit’s comments to the complaints team, and by when.
• Repeat complaint themes from the IO’s analysis feed back into credit policy discussion.
• Your NBFC is in scope under clause 3 of the NBFC IO Directions, 2026.
• Partly resolved and wholly rejected complaints escalate automatically under clause 14(1).
• The system shows only the three outcomes in clause 14(2).
• A Standard Operating Procedure (SOP) sets the time-bound flow of complaints and information (clause 14(3)).
• Replies carry the wording and details required by clauses 14(11) and 14(12).
• Overruled decisions go to the Board (clause 13(4)).
• Analysis of complaints handled by the IO feeds frontline training (clause 14(14)).