NBFC

This page explains banking disputes, NBFC and RBI matters in plain terms: the law, the forum, the documents and the usual steps. Legals365 is the legal platform of Advocate B.K. Singh and associates, based in Delhi NCR.

In short. Most disputes with a bank or NBFC start with a written complaint to the lender and, after 30 days, a complaint to the RBI Ombudsman under the Integrated Ombudsman Scheme 2026. Loan recovery fights go to the DRT, civil or commercial courts or arbitration. Consumer commissions hear deficiency in service, and the High Court hears writs against public sector banks and the RBI.

A banking dispute can mean very different things. For a salaried customer it may be money taken from an account by a fraudster, a home loan rate that went up without notice, or a credit report showing a loan that was closed years ago. For a business it may be a working capital limit cut without warning, an account classified as NPA or fraud, a lender declaring the promoters wilful defaulters, or a recovery case in the Debts Recovery Tribunal. The forum, the time limits and the strategy differ for each.

This page sets out the main kinds of disputes with banks, NBFCs, housing finance companies and other entities regulated by the Reserve Bank of India, where each one goes, what the lender is required to do under RBI's directions, and what you should collect and do before the dispute hardens. It applies to public sector banks, private banks, small finance banks, cooperative banks and NBFCs, with differences noted where they matter.

Main laws

Banking Regulation Act 1949, RBI Act 1934, Recovery of Debts and Bankruptcy Act 1993, SARFAESI Act 2002, Credit Information Companies (Regulation) Act 2005, Consumer Protection Act 2019, Bankers' Books Evidence Act 1891

First step

Written complaint to the bank or NBFC; wait 30 days for a reply

RBI Ombudsman

Integrated Ombudsman Scheme 2026, in force from 1 July 2026; complaint within 90 days after the lender's 30-day period or last reply, whichever is later

Recovery forums

Debts Recovery Tribunal (₹20 lakh and above), civil or commercial court, arbitration, SARFAESI action

Consumer forum

District, State or National Commission, by value of consideration paid; complaint within 2 years

Writs

High Court under Article 226, mainly against public sector banks, the RBI and statutory bodies

Documents

Loan agreement, sanction letter, key fact statement, account statements, complaint and reply, notices received

Two kinds of banking disputes

Banking disputes fall into two broad groups, and it helps to know which one you are in. The first is a service dispute: you say the bank did something wrong in serving you, such as allowing an unauthorised debit, levying charges not in the agreement, delaying the return of property papers, refusing to close an account or mishandling a locker. The second is a loan and recovery dispute: the bank says you owe it money and is acting to recover it, and you dispute the amount, the procedure or the classification of your account.

Service disputes are mostly handled by the bank's grievance machinery, the RBI Ombudsman and the consumer commissions, with criminal complaints where fraud is involved. Recovery disputes are fought in the Debts Recovery Tribunal, under the SARFAESI Act, in civil or commercial courts, in arbitration where an NBFC's loan agreement provides for it, and sometimes before the NCLT under the Insolvency and Bankruptcy Code. Many real cases involve both, for example a borrower who disputes penal charges while also facing a recovery notice.

Where each banking dispute goes

Start with a written complaint to the bank

Almost every banking dispute should begin with a written complaint to the bank or NBFC, sent to the branch and to the grievance redressal officer named on the lender's website. Email is fine, but keep the acknowledgment or complaint number. Describe what happened, the dates, the amounts and what you want done, and attach copies of the relevant statements and documents. A vague complaint gets a vague reply.

This step is not a formality. The RBI Ombudsman will not take a complaint unless the lender was approached first and either rejected it, replied unsatisfactorily, or did not reply within 30 days. Larger banks also have an internal ombudsman who reviews complaints the bank proposes to reject, so a rejection letter often means the complaint has already been looked at twice. Keep a copy of everything; the complaint letter and the reply become the first two documents in any later case.

For loan disputes, the written complaint also has a defensive purpose. If you dispute a charge or the outstanding figure and say so in writing at the time, the bank cannot later claim you accepted the account. Borrowers who pay disputed amounts silently, then complain a year later, find that silence held against them.

The RBI Integrated Ombudsman Scheme 2026

The RBI Ombudsman is a free, paper-based complaint route for deficiency in service by banks, NBFCs, payment system participants, credit information companies and other regulated entities. The Integrated Ombudsman Scheme 2026 replaced the 2021 scheme from 1 July 2026. Complaints are filed online on the RBI's complaint management system portal, by email or by post to the Centralised Receipt and Processing Centre.

The time limit is now shorter. A complaint must be filed within 90 days after the lender's 30-day response period ends or after its last communication, whichever is later. Under the old scheme you had a year, so readers who learned the old rule should not wait. The 2026 scheme also extends deficiency in service to all services provided by the regulated entity, not only financial services, and raises the compensation the Ombudsman can award for consequential loss and for harassment and mental anguish. Check the current scheme text for the exact limits before filing.

The Ombudsman will not take a complaint that is already pending before a court, tribunal, consumer commission or arbitrator, or one already decided there, and it does not decide disputes about a lender's commercial judgment such as whether to sanction a loan. It suits clear service failures with documents. An appeal against the Ombudsman's award lies to the appellate authority in the RBI, and the complainant remains free to go to a consumer commission or court if not satisfied.

Consumer commissions for deficiency in banking service

A bank customer is a consumer under the Consumer Protection Act 2019, and banking is a service. So a complaint for deficiency in service, such as wrongful dishonour of a cheque, failure to act on a stop-payment instruction, loss of locker contents through negligence, or refusal to release title deeds, can be filed before the consumer commission. The District Commission hears complaints where the consideration paid is up to ₹50 lakh, the State Commission above ₹50 lakh up to ₹2 crore, and the National Commission above ₹2 crore. The complaint must be filed within two years of the cause of action.

Consumer commissions can award compensation and costs, and they are often better than the Ombudsman for disputes with real facts to prove, because they hear both sides and decide on evidence. They are less suited to disputes about a business loan taken for a commercial purpose, since a person who avails a service for a commercial purpose is generally outside the definition of consumer. Filing is online on the e-Jagriti portal. See our page on consumer complaints in district and state commissions.

Unauthorised transactions and banking fraud

If money leaves your account without your authority, report it to the bank immediately, and in any case within three working days. Under the RBI's 2017 directions on customer liability in unauthorised electronic transactions, a customer has zero liability where the fraud resulted from the bank's own lapse, or from a third-party breach that the customer reports within three working days. Reporting within four to seven working days limits liability to a capped amount; after that, liability depends on the bank's board-approved policy.

The bank must credit the disputed amount to the account as a shadow reversal within 10 working days of notification and resolve the complaint within 90 days. Where the customer shared an OTP or PIN, the bank will say the customer was negligent, and the burden of proving that is on the bank. Ask for the transaction logs, device and IP details and the bank's investigation report.

At the same time, call the national cyber helpline 1930 and file on cybercrime.gov.in; quick reporting helps freeze money in the recipient accounts. A police complaint or FIR under the Bharatiya Nyaya Sanhita, usually for cheating under section 318, and the IT Act sections 66C and 66D, follows. Our page on cyber crime and online fraud explains the police side in detail.

Loan terms: interest, penal charges and foreclosure

Many loan disputes are about money the borrower says the lender had no right to charge. Since October 2024 lenders must give a key fact statement for retail and MSME loans, setting out the annual percentage rate and all charges, and charges not disclosed there cannot be levied without the borrower's consent. Since 2024, RBI's rules on penal charges require that a penalty for default be levied as a penal charge, not added to the interest rate, and that penal charges not be compounded.

For floating rate loans, the lender must tell the borrower when the benchmark changes and, on a reset, give the option of a higher EMI, a longer tenure or a switch to a fixed rate where its policy allows. Banks cannot levy foreclosure or prepayment charges on floating rate term loans to individuals for non-business purposes, and RBI has extended the bar on prepayment charges to more categories of floating rate loans, including some business loans to individuals and micro and small enterprises, for loans sanctioned or renewed from 1 January 2026. Check the current direction for your loan type.

Bundled insurance is another frequent complaint: a policy added to the loan without a clear choice, with the premium financed and charged interest. Ask for the proposal form and the consent. The remedy for most of these disputes is a complaint to the lender, then the Ombudsman or a consumer commission. When Advocate B.K. Singh examines a borrower's interest complaint, he starts by laying the sanction letter, the key fact statement and the loan account statement side by side, because the discrepancy usually shows up in the first year of the account.

NPA, fraud classification and wilful defaulter tags

An account becomes a non-performing asset when interest or instalments remain overdue for more than 90 days, and before that lenders flag stress through special mention account categories. NPA status triggers recovery action and affects the borrower's credit report. Borrowers sometimes dispute the date of NPA, which matters because it decides when SARFAESI action could start and how much interest was charged. Ask for the account statement showing the overdue position day by day.

Classification of an account as fraud is far more serious. It can lead to a CBI or police case, a bar on fresh finance and reporting to the RBI. The Supreme Court held in 2023 that a borrower must be given a notice and a chance to respond before a bank classifies its account as fraud, and RBI's 2024 directions on fraud risk management now require a show cause notice and a reasoned order. A classification made without this hearing can be challenged in a writ petition before the High Court.

The wilful defaulter tag is governed by RBI's 2024 master direction on wilful defaulters and large defaulters. It applies where the borrower had the capacity to pay and did not, diverted funds, or disposed of security without the lender's knowledge. The process involves an identification committee, a show cause notice, an opportunity to reply and a personal hearing, and a review committee. Consequences include a bar on fresh bank finance and on floating new ventures. Every step of that procedure must be followed, and the reply to the show cause notice is the place to put your documents on record.

Recovery cases: DRT, SARFAESI, courts and arbitration

A bank or financial institution recovering a debt of ₹20 lakh or more files an Original Application in the Debts Recovery Tribunal under the RDB Act 1993. The borrower and guarantors file a written statement and can file a counterclaim or claim set-off, for example for losses caused by the bank's wrongful acts. Appeals go to the DRAT with a pre-deposit of 75% of the amount due, which the DRAT can reduce to 25%. Our pages on defending a bank Original Application in the DRT and on DRAT appeals and pre-deposit cover these steps.

For secured loans, the bank can act without a court under the SARFAESI Act 2002: a section 13(2) demand notice giving 60 days, the borrower's objection under section 13(3A) which the bank must answer within 15 days, possession under section 13(4) and sale. The borrower's remedy is a section 17 application to the DRT within 45 days of the measure. See our page on section 17 SARFAESI applications. SARFAESI does not apply to agricultural land or to loans below ₹1 lakh.

NBFCs often recover through arbitration under a clause in the loan agreement, or through civil or commercial suits. Where the NBFC alone picked a sole arbitrator and an award was passed without the borrower's participation, the award can often be set aside under section 34 of the Arbitration and Conciliation Act 1996 within three months of receiving it. Many NBFC recoveries also come with section 138 cheque bounce complaints based on post-dated cheques or NACH mandates; see our page on cheque bounce complaints.

Credit report (CIBIL) disputes

Wrong entries in a credit report are governed by the Credit Information Companies (Regulation) Act 2005 and RBI's directions. If your report shows a loan you never took, a closed loan as active, a settled loan as written off, or wrong overdue amounts, raise a dispute with the credit information company online and with the lender that reported the data. Under RBI's rules, the lender and the credit information company together must resolve the dispute within 30 days, and a customer is entitled to compensation for each day of delay beyond that.

If the correction is not made, complain to the RBI Ombudsman, which covers credit information companies. A consumer complaint for damages is possible where the wrong entry caused real loss, such as a refused home loan, and you can prove the connection. A loan that appears in your name but was never taken by you points to identity theft: report it to the police as well, because the credit bureau will usually want some proof that you have done so.

Writ petitions against banks and the RBI

A writ petition under Article 226 lies before the High Court against a public sector bank, the RBI or another body that is 'State' under Article 12 of the Constitution, for arbitrary action, breach of natural justice or violation of statutory rules. Typical examples are fraud classification without a hearing, wilful defaulter declarations that skip the master direction's procedure, arbitrary rejection of a one-time settlement scheme application where the scheme lays down objective criteria, and Look Out Circulars requested by banks without cogent reasons.

Writs against private banks and NBFCs are much harder. High Courts usually decline them unless the private lender was performing a public function in the specific act complained of. Courts also refuse writs where an effective alternative remedy exists, which in recovery matters means the DRT under the SARFAESI and RDB Acts. A writ against a SARFAESI measure is entertained only in exceptional cases. For writ practice in Delhi, see our page on cases in the Delhi High Court.

Evidence from banks and summoning bank officials

Bank records are proved in court through certified copies under the Bankers' Books Evidence Act 1891, which makes a certified copy of an entry in a banker's book admissible as evidence of the entry without producing the original book. The certificate must be signed by the principal accountant or branch manager. For computer printouts, the Act requires a certificate about the system that produced them, and electronic records also need a certificate under section 63 of the Bharatiya Sakshya Adhiniyam 2023.

Bank officers cannot ordinarily be compelled to produce the books themselves or appear to prove their contents in a case where the bank is not a party, unless the court orders it for special cause. Where a bank official's evidence is genuinely needed, for example to prove who authorised a transaction, an application is made to the court for a witness summons under Order 16 of the CPC, explaining why the evidence matters. In criminal cases, the court can summon the bank official as a witness. Ask for specific documents rather than broad production, because broad requests invite delay and objections.

MSME borrowers, receivables and debt recovery

Micro, small and medium enterprises sit on both sides of banking disputes. As borrowers, they have the benefit of the framework for revival and rehabilitation of MSMEs, under which a lender must identify stress early and consider a corrective action plan, including rectification, restructuring or recovery, before moving to recovery. An MSME facing a sudden recall of its limits should ask in writing whether the framework was applied, and what the committee decided.

As creditors, MSMEs chasing their own buyers can use the MSME Facilitation Council under the MSMED Act 2006, which awards compound interest at three times the bank rate on delayed payments. Receivables financing through factoring or the Trade Receivables Discounting System (TReDS) adds a third party, the financier, whose rights depend on the assignment documents; disputes about who bears the risk of the buyer's default turn on whether the factoring was with or without recourse. Read the receivables financing agreement for the recourse clause, the notice of assignment and the events of default. See our page on MSME delayed payments and Facilitation Council claims.

How to take a banking dispute forward

1. Identify the dispute and the lender's rules

   Work out whether it is a service failure or a recovery dispute, and which RBI direction applies, such as customer liability, penal charges, credit information or return of documents. This tells you what the lender was required to do.

2. Collect documents and the account statement

   Get the sanction letter, key fact statement, loan agreement, full account statement and every notice. Ask the bank in writing for anything you do not have; a refusal is itself useful.

3. Send a precise written complaint

   Complain to the branch and the grievance redressal officer with dates, amounts and the relief you want. Keep the complaint number and wait 30 days.

4. Escalate to the right forum

   Go to the RBI Ombudsman within the 90-day window for clear service failures, the consumer commission for disputes needing evidence and compensation, and the DRT, civil court or arbitral tribunal for recovery disputes. Do not run two forums for the same grievance.

5. Protect against coercive steps

   Where a SARFAESI notice, fraud classification or wilful defaulter notice has been issued, reply within time and preserve the right to approach the DRT or High Court. Missing these deadlines is far more costly than the original dispute.

6. Keep negotiation open

   Many banking disputes end in a settlement or restructuring. A written dispute on record improves your position in that negotiation rather than weakening it.

Documents to gather

How the answer changes for different borrowers

Individual customers have the strongest protection under RBI's customer service directions and can use the Ombudsman and consumer commissions freely. Businesses and MSMEs have fewer consumer remedies, since a loan for commercial purposes takes them outside the consumer definition, but they have the MSME framework, the right to a hearing before fraud or wilful defaulter classification, and the full set of defences in the DRT.

Guarantors are liable along with the borrower, and the bank can proceed against them without first exhausting remedies against the borrower. A guarantor should insist on receiving every notice and should check whether the bank released security or changed terms without consent, which can discharge the guarantor under the Indian Contract Act 1872. Personal guarantors to corporate debtors can also face insolvency proceedings under section 95 of the IBC; see our page on insolvency under the IBC.

NRIs deal with banks mostly through power of attorney holders, and disputes about NRE and NRO accounts also touch FEMA rules. Legal heirs of a deceased customer dealing with deposits, lockers or loans must show nomination or succession documents; a nominee receives the money as a trustee for the legal heirs. Heirs are not personally liable for a deceased borrower's loan beyond the estate they inherit, which is a point recovery staff often blur.

Common mistakes in banking disputes

• Delaying the fraud report. Every working day after an unauthorised transaction increases your share of the loss under RBI rules.
• Missing the new Ombudsman deadline. The 2026 scheme allows 90 days after the lender's response period, not a year.
• Running parallel cases. The Ombudsman will not hear a matter pending before a court or commission, and duplicate cases waste time.
• Ignoring a show cause notice. A reply to a wilful defaulter or fraud notice is your one chance to put documents on record before the decision.
• Missing the 45-day SARFAESI window. A section 17 application filed late needs a strong explanation and may fail.
• Paying disputed amounts without protest. Write that the payment is under protest and without prejudice to your dispute.

What to do this week

• Download the full account statement and save every notice, SMS and email from the lender.
• Find the sanction letter and key fact statement, or ask the bank for copies in writing.
• Send a written complaint to the grievance redressal officer and note the date; the 30-day clock starts then.
• If money was taken without authority, call 1930 and report to the bank today.
• Note any deadlines in notices received: 60 days under section 13(2), 45 days for section 17, the date fixed for reply to a show cause notice.
• Pull your credit report and check every entry against your records.
• Speak to a lawyer before signing any acknowledgment, settlement letter or fresh guarantee the bank sends.

Getting advice on a banking dispute

In banking matters that come to Advocate B.K. Singh's office, the most useful document is often the one the client did not think to bring: the key fact statement, an old restructuring letter, or the bank's reply to an earlier complaint. Bring the full file, including papers you think are irrelevant. If the dispute is part of a wider debt problem, our pages on loan settlement with banks and NBFCs and recovery agent harassment may also help.

If you want the papers checked before you act, the team of Advocate B.K. Singh at Legals365 can review them and tell you the next step; you can talk to a lawyer here.

Frequently asked questions

How do I file a complaint against a bank with the RBI?

First complain in writing to the bank and wait 30 days. If there is no reply or the reply is unsatisfactory, file a complaint on the RBI's complaint management system portal under the Integrated Ombudsman Scheme 2026, within 90 days after the bank's response period or its last reply. Attach the complaint, the reply and supporting documents.

Does the RBI Ombudsman cover NBFCs?

Yes. The Integrated Ombudsman Scheme covers regulated entities including banks, NBFCs, payment system participants and credit information companies. Check the scheme for the exact categories excluded.

Can I file a consumer case against a bank?

Yes, for deficiency in service, such as wrongful debits, refusal to return documents or negligence in handling a locker. File in the District, State or National Commission depending on the value of consideration paid, within two years. Loans taken for commercial purposes may fall outside the consumer definition.

What happens if I report a fraudulent transaction late?

Your liability increases. Reporting within three working days of a third-party breach usually means zero liability; between four and seven working days, liability is capped; after that it depends on the bank's policy. Report at once even if you think it is too late.

Can a bank classify my account as fraud without hearing me?

No. The Supreme Court held in 2023 that a borrower must be given notice and an opportunity to respond before classification as fraud. RBI's 2024 fraud risk directions require a show cause notice and a reasoned order. A classification without this can be challenged in the High Court.

Can I file a writ petition against a private bank?

Generally not, because a private bank is not 'State' under Article 12. High Courts entertain such writs only where the bank was performing a public function in the act complained of. Other remedies, such as the DRT, consumer commission or civil court, are usually the route.

How long does a bank have to correct my CIBIL report?

Under RBI's rules, the lender and the credit information company must resolve a dispute within 30 days in total. You are entitled to compensation for each day of delay beyond that. If it is not corrected, complain to the RBI Ombudsman.

Can a bank charge a penalty for prepaying my home loan?

Not on a floating rate home loan taken by an individual for a non-business purpose. RBI has widened the bar on prepayment charges for floating rate loans sanctioned or renewed from 1 January 2026. Fixed rate loans may carry charges as per the agreement.

What is a wilful defaulter and how can I contest it?

A wilful defaulter is a borrower who had the capacity to repay but did not, or diverted funds or disposed of security. The bank must follow RBI's 2024 master direction: show cause notice, opportunity to reply, personal hearing and review. Reply in detail with documents; a writ lies if the procedure is not followed.

Can bank officials be summoned to court as witnesses?

Yes, by applying to the court for a witness summons, explaining why their evidence is needed. Bank entries are usually proved by certified copies under the Bankers' Books Evidence Act 1891. Courts compel production of the books themselves only for special cause.

Where does a bank file a recovery case against me?

For debts of ₹20 lakh or more, in the Debts Recovery Tribunal. Below that, in a civil or commercial court. For secured loans, the bank can also act under the SARFAESI Act without going to court first.

Can an NBFC recover a loan through arbitration?

Yes, if the loan agreement has an arbitration clause. If the NBFC alone appointed a sole arbitrator, the appointment and the award are open to challenge. An award can be challenged under section 34 of the Arbitration Act within three months of receipt.