Standing Instruction or Unfair Trade Practice?

Each one of us have invested in recurring deposits (RD) at some stage. And the process is very simple, the instalments are made on a fixed date every month and the principal amount along with applicable interest is paid back exactly one month after the last instalment. I never bothered to check the interest as the amount is very less. However it helps me in generating some handy cash for big purchases. Can anyone manipulate the interest calculation? Very difficult, right? But what if a big bank like ICICI (which pioneered Internet Banking revolution in India) comes up with innovative way of cheating customer and siphons off small portion of interest from your RD. The amount is so miniscule that we will not even be aware of any manipulation. The interest on RD itself is something which we never care, what difference does it make if few percentage points are siphoned off. It is like taking off couple of cents (or paisa) from every transaction. It does not make any visible difference but banks can make millions from transaction worth trillions.

Interest Accrued as per Bank

ICICI Bank has a very interesting feature called 'Standing Instruction', whereby a request is executed on scheduled date. I placed request for Recurring Deposit for 15 months using this facility on 23rd July with instruction for instalment on 2nd of every month. The first instalment was deducted immediately from my savings account on 23rd of July and the next instalment was deducted on 2nd Aug (and scheduled for 2nd every subsequent month). Now, this is strange! This is not what I learnt about RD all through my life. I did went through the pain of calling up customer care, sending mails, escalating to grievance forum and even sending mail to their senior management and received this sheet for interest calculation. As you can see clearly, this sheet for calculation of interest does not conform to the instalment schedule. I modified the sheet to account for the way instalment is being debited and (surprise surprise), found that I am being cheated for Rs 150/-. 

Actual Interest Accrued

Rs 150/- on a investment of Rs 30000, is that something one should be bothered? It does not even fit bill for one day commute to office. But it is more than 8% of the total interest on RD which bank is paying to me. Moreover, I am not the only one impacted, but it is every customer of ICICI who is placing standing instruction. Actually ICICI does not provide the option for a regular RD, but the only option is through Standing Instruction. On an average it translates to ~6% interest loss to customer on every RD being opened with ICICI. This loss for customer translates into profit for bank. Last year ICICI generated new deposits of ~INR 400 billion. It is not clear how much proportion of it was through RD, but even if it is 0.1%, this translates to couple of millions in free cash. Approximation might be way-off either side, but it is clearly visible that ICICI bank is indulging in Unfair Trade Practice and cheating the customer on the pretext of providing a facility to customer.

Sharing some of the response from ICICI when raised this issue to them.
Reply from Customer Care

On the basis of our telephonic conversation on August 10, 2014 at 10:30 a.m., we inform you that, for every Recurring Deposit(RD) the first instalment amount will be debited on the account opening date and the next instalments will be debited as per the standing instruction date set by you. If the resolution provided does not meet your expectations, you may escalate the issue to the next level.
Reply from Senior Management Desk

We would like to inform you that the standing instruction is a facility offered to the customer as a means of payment of monthly instalment. The date and medium through which the instalment is paid in a calendar month has no bearing on the interest to be paid on the Recurring Deposit for that month.

Take the case of a customer who places a request on 1st day of month for instalment to be debited on 2nd day assuming that RD will start from 2nd of month. He will actually end up paying two instalments within 2 days. That amounts to loss of interest on one instalment for the whole period!!! Clearly I do not see any facility to customer, rather he is on receiving end. The only one who is being benefitted through this feature is the Bank. As of now, I am still following up the issue with the Bank and they have requested one more week to respond. Next step is Banking Ombudsman, however suggestion from any quarter will be appreciated.

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SpiceJet waging interesting battle

So again SpiceJet has come back with super sale, that too for travel as early as next month. It made sense when such offer was launched initially. But now every other day there is a super sale offer that I am tempted to equate it with road-side sales which run throughout the year. The mode for them is simple - put the price tag to an exorbitant amount and then offer discount to tempt the buyer. Simply put, Airline fares are probably only 20% cheaper in these super sale. They appear much cheaper as fare is artificially inflated during non-sale period. During last one year, the aviation fuel has not got any costlier. Though it was costliest in Sep 2013 when it crossed the last peak of August 2008 for the first time, the price has remained subdued in last year on account of global price movement. As projected by Airlines, aviation fuel constitutes close to 50% of running costs, so there is no genuine reason for airlines to increase price by 30% during non-sale season of off-peak season.

I did mentioned earlier that such discounts do make sense at end of the year as it makes balance sheet healthy and gives access to easy cash. However discounts everyday and even for period till Oct next year smells bad. For Indigo which is probably only airline in black, it has been a catch-up game as it is a market leader and is planning to come-up with an IPO soon. It simply cannot afford to loose any market share to SpiceJet as it will have impact on its valuations. Though such strategy might not bode well if IPO is delayed as the revenues will take a hit with such discounted fares for immediate travel (of course for trips beyond 4-5 months, I can bet its a good strategy).

But what of SpiceJet which has reported losses in excess of Rs 1000 cr in last fiscal. It is in hard need of cash to run operations. To keep the flag high, it is selling tickets till October 2015, more than a year later. It is a fool's guess if someone will buy a ticket for next October, but whatever small percentage it manages to sell, it still brings in liquidity. It will be difficult for it to sustain operations with such discounted fares and I am afraid it is going Kingfisher way. Just scared with the thought if this airline gets grounded or taken over in near future.

SpiceJet must be hoping that with economy reviving, people will start flying again and that will help it tide over this crisis. But it is hoping against hope. Since the slowdown of 2008 that led to travel freeze in most companies, people have learnt to work though audio and video conferencing. With economy reviving, this trend is not going to reverse as now even any infrastructure is not needed for video conferencing. In addition to downturn in Business Travel, baggage allowance restrictions turned away the family traveler. Cheap tickets for foreign destinations and new domestic airlines is not helping either. Recent incidents with airlines made matters worse.

So what this means is that SpiceJet is overburdened with over capacity. When everyone is offering discount, it is probably to lure passenger from other segment, but it is surely not a planned strategy or work of cartel. With all airlines offering discounts in response confirms the fact that supply is more and it is more of action and reaction.  Hoping for an revival in flying habits of passengers might hit them below the belt. Such frequent discounts is only going to harm the sector as a whole and someone should put in serious thoughts that working like a frenzied strategist. Probably some of my EPGP mates can help these guys ;).