Module: General Practice
Q18: Consider the following statements regarding grievance redressal and compliance audits for distribution channels:
Statement 1: The Internal Ombudsman (IO) mechanism in banks serves as an independent, apex-level internal authority to review unresolved customer complaints, including mis-selling allegations, before they are escalated to the RBI Ombudsman.
Statement 2: Under the new draft directions, REs are explicitly prohibited from linking the performance appraisals and variable pay of their branch officials exclusively to cross-selling targets.
Statement 3: In cases where mis-selling is conclusively proven by the internal grievance committee, the RE is mandated to refund the entire principal amount along with an annualized penal interest of 8% to the affected customer.
Statement 4: All Regulated Entities must submit a comprehensive, board-approved "Distribution Channel Audit Report" to the Department of Supervision (DoS) on a strict quarterly basis.
Which of the above statements is/are correct?
Statement 2: Under the new draft directions, REs are explicitly prohibited from linking the performance appraisals and variable pay of their branch officials exclusively to cross-selling targets.
Statement 3: In cases where mis-selling is conclusively proven by the internal grievance committee, the RE is mandated to refund the entire principal amount along with an annualized penal interest of 8% to the affected customer.
Statement 4: All Regulated Entities must submit a comprehensive, board-approved "Distribution Channel Audit Report" to the Department of Supervision (DoS) on a strict quarterly basis.
Which of the above statements is/are correct?
✅ Correct Answer: A
🎯 Quick Answer:
Statements 1, 2, and 3 are correct. Statement 4 is incorrect. (Option A)Structural Breakdown: The RBI mandates that REs must have a Root Cause Analysis (RCA) framework.
If a specific branch has a disproportionately high number of mis-selling complaints, the bank's internal audit must flag the structural pressure or specific personnel causing it.
Historical / Static Context: Previously, penalties for mis-selling were opaque, and customers often lost substantial portions of their principal when surrendering unsuitable policies due to hidden exit loads.
The Dynamic Update (NEW) & Data: The 2026 update qualitatively attacks the root cause by banning the practice of tying employee appraisals solely to cross-selling targets (Statement 2). The hard data parameters heavily penalize the bank for proven offenses: they must refund the principal plus a compensatory penal interest rate of 8% per annum (Statement 3). However, the "Distribution Channel Audit Report" mandated by the draft is required on an annual basis, not quarterly (making Statement 4 incorrect), to align with the standard financial audit cycle.