Wednesday, August 27, 2014

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.


  1. Wow.. Alok.. I did not think about this.. Let me check my RDs also..

  2. so if you have given standing instruction for 23rd of every month this wld not have happened - is this correct ?