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Banks can’t deny interest on premature withdrawal

delhi Updated: Apr 04, 2010 00:46 IST

The annual report published by the Reserve Bank on the Banking Ombudsman Scheme for the year 2008-2009 shows a 44 per cent jump in the number of complaints received by the 15 Ombudsmen in the country (as against the previous year).

This, however, should not come as a surprise to bank customers. Banks have become habitual violators of various instructions, directions and guidelines issued by the banking regulator.

Take, for example, the RBI circulars on term deposits. It clearly says that banks should allow premature withdrawal of a term deposit, if requested by the depositor.

It further clarifies, "The bank will have the freedom to determine its own penal interest rate of premature withdrawal of term deposits. The bank should ensure that the depositors are made aware of the applicable penal rate along with the deposit rate. While prematurely closing a deposit, interest on the deposit for the period that it has remained with the bank will be paid at the rate applicable to the period for which the deposit remained with the bank and not at the contracted rate.”

Yet, there are instances of banks refusing to allow premature withdrawal of amounts kept in fixed deposits and refusing to pay interest on the amount.

Here is one such case decided by the Banking Ombudsman.

The consumer in this case had deposited Rs 6 lakh for a year, but on account of some emergency he requested for premature closure of the deposit after 10 months. The bank refused to pay the deposit before maturity. Subsequently, it did allow premature withdrawal but without any interest for the 10 months.

On receiving a complaint from the consumer, the Ombudsman asked the bank for an explanation. It said as per terms and conditions governing the special deposit, premature closure was not allowed at all. In this case, it was allowed as a special gesture but without any interest.

The Ombudsman found these terms and conditions were never made known to the customer at the time of collecting the deposit. The bank had even revised the special term deposit scheme after four months but it was not intimated to the customer.

Besides, the bank's terms and conditions were in violation of RBI directives. The bank was therefore asked to pay interest.

Here is a general note of advice: Whenever you opt for a term deposit, check out the terms vis-à-vis premature withdrawal of the deposit. What is the interest that the bank will pay in such a case? If the terms are not good, try another bank. Remember, you have plenty of options.

Surinder Bhatia: We have two FDs of Rs 1 lakh each with a private bank. The FDs are for 5 years tenure, starting 9.9.2006. The bank was to pay interest quarterly. It paid us a few times, then stopped. We have met the bank manager five times and have given two letters but without any results. We have also asked for a statement on the interest paid to us so far but the bank manager does not even care to respond.

Answer: This is a case of gross deficiency on the part of the bank - it is not only violating the terms of the fixed deposit mutually agreed upon but also not issuing a statement as required. Please lodge a complaint with the Nodal Officer of the bank - you will find his e-mail address on the bank's website. Also, please send copies of the complaint to the Banking Code and Standards Board of India (www.bscbi.org.in) and the RBI (www.rbi.org.in).