NRI Customers Beware of Deposits in Indian Banks - NRE Rupee Deposit

Hi NRI Friends

If you have Invested in NRE Deposits of a Private Sector Bank and you have received any letter intimating retrospective reduction of Interest Rate - Be Aware of your rights  Go thorugh the Blog Published in this respect.

Link:  http://virtualbusinessfinance.blogspot.sg/

Old Private sector Bank - Reduction of Interest rate on On-going NRI deposit of 5 Years and above with Retrospective Effect that too after one year of opening of the deposit

Old Private Sector Bank from Tamil Nadu - Reduction of Interest rate on On-going NRI deposit of with Retrospective Effect that too after one year of opening of the deposit

Bank Email to a Customer reducing rate of Interest on NRE deposit with retrospective Effect due to their mistake in offering higher percentage violating the RBI Guidelines.

One of the NRI customer( from Oman) of a old Indian Private Bank (head quartered in Tamil Nadu) has posted in one of the site that the bank had sent an email after one year of accpeting Fixed deposit that they have wrongfully offered interest higher than what was to have been offered in terms of RBI Guidelines and have Indicated in the Mail that the Rate of Interest has been revised downward and had indicated recovery of excess interest paid. This was for information.

The customer has raised few questions on the breach of contract and improprietary on the part of the Bank in making such reduction and requested for legal advise.

There are many such NRI customers who have invested after 1st March 2014, who have got into this problem and hence thought could give an fact sheet on the course of action available to them. 

1. No doubts Bankers are governed by the RBI policy guidelines while offering rate of interest to customers. But it needs to be noted that such circulars and notifications are purely addressed to the banks and the customers are not privy to such instructions.
2. Banker display in their site the rate of interest applicable on the deposit of Domestic customer and NRI cutomers separeately.
3. When a NRI customer refer the table of rate applicable for NRI deposit, no where it is mentioned that the rate of domestic deposit has to be verified to ascertain the accuracy of the rates.
4. No where in the deposit receipt it is mentioned that the rates payable to NRI has to correspond to the domestic rate or it is governed by RBI guidelines
5. The rate of interest offered by the bank is only an invitiation to offer and not an offer and once the money is transferred by the customer he makes the offer by issuing either cheque or instruction to create a FD and bank accepts it by appropriating the money and issuing the deposit receipt.
6. If there are any error of omission or commission on the face of the receipt, the customer has to go back to the Bank highlighting the mistake and take necessary corrected receipt.
7. Once the money is accepted and receipt is issued by the bank a legal contract is concluded and both the customer and bank are governed by the terms of the documents submitted including the receipt.
8. If there are any error of such nature, the bankers are expected to come back quickly within a reasonable time and the customer should be given am option of either continuing with the deposit with modified terms or end the contract and the customer can have the right to have legal recourse for such breach of contract. The customer should always have the right to mitigate his loss even if the contract is repudiated by the bank because of there mistake and the claim could be then limited to the actual loss suffered after mitigation.
9. It has to be noted that the circulars and instructions are issued to bankers specifically it is not a public document. Since not adhering to the rate of interest policy of the RBI is a violation of RBI norms and is between the banker and RBI it does not extend to customer, RBI has a right to take appropriate action against the bank for such violaton but does not void the contract between the customer and the bank. In short there is no illegality in the contract between the customer and the Bank.
10. Every bank has a guidelines publishd and which is hosted on the site under the head Deposit Policy of the Bank and if you refer such policy it would be clearly indicated that whever they offer interest rates on deposit, they strictly follow the guidelines of the RBI
11. Whenever any changes in Rate of Interest takes place they need to mention it clearly and also put it in the website indicating the changed rate and the effective date.
12. The Banking companies are governed by various codes published by Banking Codes and Standard Board of India and one of such code deals with "Code of Bank Committment to Customers" published in Jan 2014 and a perusal of the code clearly indicates the customers right and banker's obligation In point (a) Paragraph 2.1.4 it is the duty of the bank to compensate the customer for any loss incurred by them on account of banker's mistake as per the compensation policy.
13. The object of this standard is that bank should be ethical in his dealings with customers.

Based on the above the bank having agreed to have commtted a mistake is bound to compensate the customer and if they have not offered any solution it is pure violation of the code and gives right to customer to approach necessary judicial or quasi judicial authority for recourse.

Further the bank having made a contract and in terms of such contract having effected the payment that too for a period of 1 years has no right to repudiate the contract unilaterally and any such repudiation will give right to the customer to sue the bank for breach of contract for the actual loss and also for compensation.

The course of action for the cusomer is summed up as under:

1.  Write a letter or mail to the bank asking them to restore the old interest rate or offer for compensation for the loss suffered.
2. If no reply is recieved within 30 days or if the reply received in unsatisfactory, you can make a complaint to the Banking Ombudsman the details of which is available in RBI site and would be available in every bank also.
3. Fill up the Annexure, attach the correspondece of mail received from the bank and your mail together with the reply if any received and this could be electronically forwarded to them. For your interest after you send the mail, please call them over the phone after couple of days to confirm whether they have received the mail.
4. There is no cost invovled and they are not governed by any civil procedure code etc and the time limit is within one years from the receipt of the mail from the bank you have file the complaint subject to your having taken up with the Banker.
5. They will attempt to bring an agreement between the customer and the bank and within 30 days from the date of receipt of complaint would pass an award which is binding on the bank
6. Any person who is not satisfied with the award could approach the appellate authority and in this case it is the deputy governer of the RBI. This should be filed within 30 days from the date of receipt of award.
7. The customer who is not satisfied with the decision of the Ombudsman can also approach the consumer court for the relief. The right to approach consumer court can be even the first stage without approaching the ombudsman but once you approach the court you loose your right to approach the ombudsman.
8. They are various decisions where higher interest was offered by bank which was later reversed because of non comfirmity with the RBI guidelines, the courts have held that to be a deficiency in service and have given decision against banks. Such decision of consumer court is also available in RBI website.
9. It has to be noted that the interest earned on NRI deposit is exempted from Income tax in the hands of the NRI tax payer whereas compensation if any received may be viewed as taxale receipt even in the hands of the NRI unless it is considered as a capital receipt. While making a claim for compensation this aspect of taxation has to be factored in the claim.
10. The above information is given based on the best of my knowledge and each fact of the case may be different and need to be studied before deciding the future course. This can be considered as a guideing note
11. This is the personal view of the writer based on his understanding of the provision of applicable law,the standards and procedure and it is not a legal opinion and the author will not be held responsible for any inaccuracies contained in this blog or  for any consequences arising out of action initiated based on the contents of this blog.

The author is a qualifed chartered accountant and  could be contacted for any specific point or advise rearding this Article on his email : msmani1958@gmail.com

Note: This blog is written as a general guidelines for customers and is not for soliticiting any business