Banking Ombudsman jurisdiction extends to alleged arbitrary credit ratings affecting interest charges, subject to limited reasonableness review.

A borrower's complaint that a bank arbitrarily assigned a poor credit rating, leading to a higher interest charge on a cash credit account, can fall within the Banking Ombudsman's limited jurisdiction under the Banking Ombudsman Scheme, 1995. The Ombudsman may examine whether the rating and resulting interest treatment involved non-observance of Reserve Bank directives on interest rates, but may not substitute his own credit appraisal for the bank's commercial judgment. The review is confined to whether the rating, on the borrower's repayment record and relevant material, was so unreasonable that no prudent banker would have adopted it.

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Issues: Whether a borrower's grievance that the bank arbitrarily assigned a poor credit rating, thereby charging a higher rate of interest on the cash credit account, falls within the Banking Ombudsman's jurisdiction under the Banking Ombudsman Scheme, 1995.

Analysis: The Scheme confers jurisdiction on the Banking Ombudsman to receive complaints relating to banking services and to consider complaints concerning loans and advances insofar as they relate to non-observance of Reserve Bank of India directives on interest rates. Interest rates are inextricably linked with the credit rating adopted by the bank. While the bank has freedom in credit appraisal and in assessing a borrower's creditworthiness, that freedom is not absolute where the complaint concerns the reasonableness of the credit rating already assigned and its effect on interest charges for a past period. The Ombudsman is not to substitute his own banking judgment, but he can examine whether, on the borrower's repayment record and relevant material, the rating was so arbitrary that no reasonable banker would have assigned it.

Conclusion: The grievance was within the Ombudsman's jurisdiction to the limited extent of examining whether the credit rating for 1994-95 and 1995-96 was reasonable or arbitrary, and the matter required reconsideration on that basis.

Ratio Decidendi: A complaint that a bank arbitrarily fixed a borrower's credit rating, affecting the rate of interest on an account, can be examined by the Banking Ombudsman under the head of non-observance of Reserve Bank directives on interest rates, though only by a broad review of reasonableness and not by substituting the Ombudsman's own credit appraisal for that of the bank.

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