Banks credit such amounts to your SB/CD account with it or with another bank, by electronic transfer. To justify its action for knowingly defying directions of the banking Regulator, these banks have put forth absurd arguments, made fraudulent statements.)
What prompted me to write on this subject:
Background
After the directions issued by RBI on July 2, 2012, almost all banks were redeeming FDs maturing on a bank holiday/non-business working day (on the immediate following working day and were paying the interest for the tenure of holidays at the FD's contracted rate of interest.
Of late, some small finance banks and a few private sector banks have started a new practice of repaying the FDs maturing on a holiday, on such a holiday, with the maturity amount. The concept of not redeeming on a holiday, prevalent across the financial sector, is abandoned. As there had been no regulatory action (except the ombudsman's side, in some cases) soon, this practice will spread in the industry, and all banks will follow it as it is financially beneficial to them.
Soon, it will become a general market practice (and a myth) like using a boldly printed tagline used by the entire system: "This is a computer-generated paper and does not require a signature."
Specific reference to RBI, of some such live cases, with complete details, so far, had evoked no response, no regulatory action. I am pursuing the matter with CEPD, RBI and the DoR, RBI. Through this write-up, I am making an effort to create public awareness.
Before I proceed, I feel it is necessary to state what is holiday/non-business working day.
A "non-business working day" refers to a day that is not considered a standard business day. In the context of Indian banks, this usually includes weekends (2nd Saturday, 4th Saturday, and Sunday) and public holidays, where businesses at bank branches is typically closed. Banks' call centres, centralized units, and such facilitating offices may be functioning on such days.
In a year, there are:
- Sundays 52 + Saturdays 26/52* (*if 2nd and 4th Saturday are also declared as holiday/non-business working day)
- Holidays under the NI Act 15
- Other Special holidays**: 2-3
- **Election (voting), Local emergency etc.
Thus, from the current 95 non-business working days, the tally would shoot up to 121 (which would be almost 1/3 of the days of a calendar year)
The subject put forth here may appear to be tiny, but gravity can be understood if the number of holidays in a year and the stakes of fixed deposits maturing with the banks on each such holiday/s are considered.
These days majority of FDs, with the banks, are 1-2 years. Many bulk deposits by HNI and corporates are normally placed for a short term (I have ignored them) and reinvested from time to time, many cycles, within a year, and are reinvested; therefore, such FDs get matured many times in a given year.
The quantum of FDs maturing on holidays would be in the range of Rs 45-50 trillion [FDs aggregate number with banks is Rs 135 trillion]. The system needs to follow a uniform and proper process.
The system is laid down by the RBI. For long, few banks have started disrespecting long-existing mandatory directives (do so at their pleasure), and they should stop forthwith.
I feel, not everyone is well-informed about rules and regulations, and they get carried away by explanations put forth by these banks.
Courageous Banks disregard the RBI's directions and misquote, misinterpret the mandatory directions.
Approaching the RBI Ombudsman is not feasible for the customers. On the other side, it would be unmanageable to the Ombudsman (RBI-IO) if each such case were filed to be resolved through the IO mechanism.
Such Banks, seen flaunting their own FD policy, respond terribly upon questioning/assertion.
If RBI wishes to revisit its directions of July 2, 2012, reiterated through the Master Directions of March 03, 2016, April 1, 2025 and tune it consistent with the fixed income securities market, it may do so. But a strict implementation is most important.
This write-up, without actual instances with the name of the bank, may not carry the desired impact. Hence, though I was unwilling, I had mentioned the names of a few such banks and incorporated their selected absurd and misdirecting responses received from such banks, for better understanding how the matter is being twisted by banks.
The complete cases with full details were referred to RBI. Unfortunately, till now, the RBI has not acted against such banks.
Equitas SF Bank and Jana SF Bank's recent experience:
I felt that without sharing the facts in a little detail, my object behind writing this large article would not be clear.
In the past, I had little similar experience with IndusInd Bank and Kotak Mahindra Bank. Not incorporated here.
Very recently, I had experienced two instances with two 'small finance banks':
FD was maturing on holiday. Sensing well what could happen I informed well in advance to each bank what are RBI's directions in this regard. Despite this, these banks repaid the FD amount due on the holiday, on the holiday.
In both cases, a grievance was lodged. Both were replied to casually through their junior officers, giving some illogical reasons.
Upon escalation (Jana SF bank did not respond further so far), another bank (Equitas Small Finance Bank responded through its 'so-called office of the PNO' (!). Some text is reproduced (objectively) for a better understanding of the concern.
Response of Equitas SF Bank
"RBI Circular Reference (DBOD.No.Dir.BC.1/13.03.00/2012-13)
We acknowledge your reference to clause 2.21 of the RBI circular dated July 2, 2012. However, with the introduction of 24x7 NEFT services by RBI in December 2019, banks are now able to process maturity payments even on Sundays and holidays, ensuring that customers receive their funds without delay or interest loss. Hence, interest credits happen on the date of the maturity itself".
Payment of maturity amount towards FD # _____________:
The FD maturity amount was credited on the maturity date (which fell on a Sunday) using NEFT 24x7 infrastructure. As the funds were settled on the same day, there was no delay or loss of interest. The contracted rate was applied up to the date of maturity, in line with current operational capabilities and regulatory expectations.
Concern raised on interest loss:
As already informed, the funds were credited on the maturity date (on Sunday) as per the contracted period and rate of interest. Hence, there is no loss of interest.
Role of Internal Ombudsman:
Your feedback has been duly shared with our Internal Ombudsman, who has reviewed and concurred with the bank's process of crediting the maturity amount on a non-working day. The Ombudsman has endorsed the bank's approach in this specific case."
Upon challenging responses and questioning with examples, the SF bank relies on its absurd conclusion: "there is no interest loss to the FD holder", software limitations, etc
Equitas SF Bank again responded as under
1. "Compliance with RBI Guidelines and NEFT 24x7 Infrastructure
The maturity proceeds of your FD were credited on the date of maturity, which fell on a Sunday, using the NEFT 24x7 infrastructure introduced by the Reserve Bank of India in December 2019. This facility enables banks to process transactions on all days, including holidays, ensuring timely credit without any loss of interest.
2. Interest Payment and Contractual Terms
As per the Master Direction - Reserve Bank of India (Interest Rate on Deposits) Directions, 2025 issued in Apr'25, clause (5.8) screenshot given below, only if the maturity proceeds are not paid on the maturity day, interest is payable for the intervening period till the maturity proceeds are paid.
We wish to inform you that since the FD maturity proceeds were paid on the same day of maturity, there is no further interest applicable.
3. Banks' Deposit Policy Alignment
The Bank's policies are subject to Annual review and hence will be amended accordingly in due course with the latest regulation of Apr'25 stated above.
However, please note that the RBI's Master direction supersedes the policy of the bank.
4. Internal Ombudsman Review
Your grievance was reviewed by our Internal Ombudsman, who has concurred with the bank's process and confirmed that the crediting of maturity proceeds on a non-working day was appropriate and compliant with regulatory expectations.
If you are not satisfied with the resolution provided by the bank, you may write to the Banking Ombudsman. Details given below"
Thus, the bank suggested to me that I may approach the RBI- RBI-integrated Ombudsman. The SF bank knows well that the matter was taken up as a public interest matter, and public interest matters cannot be dealt with by IO under RBI-OS-2021 as IO cannot give awards retrospectively and omnibus, as a pool.
It is quite likely that with all these smart responses, any average client will remain silent.
I, however, did not want to remain silent as I was looking at the case from the very beginning of it as a public interest matter.
Bank's defence was unfounded/groundless, and fraudulent/false, but it was responded to courageously.
In response, I quoted year year-old integrated ombudsman's order awarding compensation for deficiency to my family member plus one day (holiday interest ) on account of this matter [details such as the text of such award, case number, date of decision and reason for deciding the case in favour of the complainant by IO were provided to this bank].
Apart from posing a few related questions, supported by examples, quoting text from Equitas SF Bank's response I requested the SF bank to let me know as to:
"where the circular states that if the FD maturity proceeds are paid on the same day of maturity, there is no further interest applicable".
I did inform the bank that, "You are building your logic, defending your illegitimate act (despite my providing reasons why RBI had asked the bank to pay holiday interest, repeating its directions of the year 2012 in the year 2025)".
I asserted bank: "Do you think RBI is not aware of the technological progress the banking system has made since 2012?"
Now, please peruse the extent that indicates the extent to which the bank stretched the argument just to defend my observation that the act of the bank is inconsistent with your deposit policy as well.
"3. Banks' Deposit Policy Alignment
The Bank's policies are subject to Annual review and hence will be amended accordingly in due course with the latest regulation of Apr'25 stated above. "However, please note the RBI's Master direction supersedes the policy of the bank".
I had to write to the bank about that:
"RBI directions (which claim to supersede your board-approved deposit/interest rate policy), you claim to have stated "If the FD maturity proceeds were paid on the same day of maturity, there is no further interest applicable"seems to be nonexistent; hence, the statement that RBI's Master direction supersedes the policy of the bank also seems fraudulent and misdirecting all concerned, including RBI."
I further stated: "any busy executive at the regulator's office may get carried away with the bank's false and misleading statements and dismiss this matter of public interest".
On point of limitation of handling through it software I did inform the bank that this can be easily bypassed/surpassed (even for old FDs, through a workaround) to trigger it on the following working day or otherwise (if RBI amends existing mandatory directions to redeem on the following day with interest for holiday at the contracted rate of interest for the subject FD).
I did warn the bank that it is intentionally disregarding the RBI's directions and has been repeatedly quoting directions that did not exist in the RBI's circulars.
Though the defence was unfounded/groundless, and false, the bank did not want to follow the RBI's mandatory directives.
I feel such an attitude of misdirecting one and not following the mandatory directions of RBI should be dealt with severely; at least, all clients should know such practices and assert to their bank if they observe such.
These days, even tiny banks have become super intelligent (!). These banks conveniently disregard the mandatory directives of the banking regulator, sure of no punitive action from RBI, defend their actions, writing absurdly to the client (whoever asserts the act of violation of the RBI directive), at times misquoting, misinterpreting intentionally and misdirecting clients.
It is shocking to note that SF Bank dared to sell its view and justify its illegitimate act, stating that it is the revised framework of the RBI/direction of the RBI.
The country's financial system and different market segments like the bond market, government securities market, forex market inter-bank market are functioning in the same technology environment, and there is nothing special to the banks; hence, recklessly putting forth these arguments doesn't seem to be logical.
I am confident that due thought would have been given by RBI in the year 2012, and probably wanted to set in standard market justified convention while directing the banks and therefore repeated and continued its master directions till 2025.
However, due to the intentional breaching attitude of a few banks, implementation has been faulty. Banks are making a mockery of directions and substantiating with stupid (!) arguments.
Since the RBI is not acting heavily on its banks, they are enjoying the benefits.
Here, I hope RBI will implement the directions, considering all the aspects mentioned in this write-up.
Both Equitas SF Bank and Jana Bank, to date, have remained silent to my initial response. Upon my response to the matter of 'no interest loss to customer', I wrote to the bank:
"1. That there is certainly interest loss (the contracted rate of interest to FD customers, as the contracted FD rate (directed to pay) is always higher than the interest paid/earned on an SB/CD (at the marginal paltry interest rate or no interest as the case may be) from the holiday till the date immediately following the holiday/due date. Where the money flows to the current account, except in special circumstances, no interest is received on such funds remitted.
2. It is also possible that the depositor has given neither maturity payout instructions nor renewal; in that case, the amount would possibly get parked in a 'miscellaneous creditors/inter-branch or suspense account,' and in such cases, customers will be deprived of interest for the maturity day (holiday)".
It is also good to remember/know what the scenario is in the fixed-income securities market:
Govt security- Coupon bearing
It is always in the nature promissory note.
Treatment of principal amount: Market Convention: Security maturing on a holiday, the principal amount is paid on the previous working day.
Treatment of Interest amount: Interest amount is paid on the next succeeding on working day. As the principal is already paid a day before the actual due date, no interest is paid on the delayed payout of interest.
Govt security- Non-Coupon bearing
Zero-Coupon Govt security and Treasury bills of all (different) maturities: Payment of maturity amount (includes principal and interest), i.e face value of the security. If maturity is a holiday, the full face value (maturity principal and entire interest) is paid on the previous working day. No interest cut even if the actual payment occurs on the previous working day, due to a holiday.
In the Fixed Income corporate debt securities (bonds, debentures) market practice followed is similar to one directed by RBI in the year 2012 to banks.
Redemption: It is guided by the offer document, or what is called a term sheet.
If corporate bonds/debentures are issued in the form of a promissory note and fall due on a holiday:
The principal and interest are paid on the immediately preceding working day. The entire redemption proceeds are paid on the previous working day. No interest cut even if the actual payment occurs on the previous working day, due to a holiday.
If bonds/debentures are issued and are not a form of a promissory note and are falling due on a holiday, the payment is made as per the term sheet, which almost all cases, states that principal and interest will be paid on the following working day. If the issuer has not stated that it would be paid the following day, it is always paid together with interest for the holiday at the contracted rate applicable to the Debenture (on principal amount) for the period between the due date (holiday) and the actual payout date, and paid on the following working day.
Periodical interest coupon (only) due, not the principal: Payments on each coupon date [bonds/debentures]:
The coupon payment due on the holiday is made on the next working day. Even though the periodical interim coupon payment is made on the next working day, the interest calculation is based on the original scheduled coupon date, not counting the holiday.
Commercial paper issued by corporates /Certificate of Deposit issued by banks and FIs /Zero Coupon Bonds/Treasury Bills (issued by GoI) , are paid in full (including interest) on the immediate preceding working day, this is due to Section 25 of the NI Act.
In postal savings, also, if the TD/FD/NSC/SSS is matured, the principal and interest are on the following working day and interest is paid for the holiday/non-business working day/s at the contracted rate for such NSC,TD/FD, SSS and MIS deposit, automatically.
At least in the past, I have seen many big banks respectfully handled RBI's directions, through their banking software. If all agencies handle this, why not these tiny banks?
If one draws paralance if the FD quarterly/monthly interest is due, it needs to be paid on the following day (with no additional interest). But if the last interest and the principal are due on a holiday, interest on the principal amount is required to be paid on such principal amount at the contracted rate, for the holiday/s falling between the scheduled due date and the payout date.
If FD is under a cumulative interest scheme, such interest would be paid at the contracted rate on the maturity amount payable (after TDS, if any).
As stated above, RBI needs to take an internal view and decide whether the directions*** of July 2, 2012, that are continued till now, which are based on sound logic, should be continued.
If yes, direct banks must enforce it and refrain from giving any absurd reasons for their illegitimate acts. The text of the direction reads as:
***"If a term deposit is maturing for payment on a non-business working day, Scheduled Commercial Banks shall pay interest at the originally contracted rate on the original principal deposit amount for the non-business working day, intervening between the date of the maturity of the specified term of the deposit and the date of payment of the proceeds of the deposit on the succeeding working day."
It may consider and settle the convention in sync with other fixed interest income products like corporate debentures (the G Sec pattern may not be feasible, legitimate, given the nature of FD paper/investment, and the fact FD it is not in the format of a promissory note),
The matter in the form of write-up as a public interest matter, and I hope either banks like Equitas SF Bank, Jana SF Bank, IndusInd Bank, Kotak Bank would correct their illegitimate approach and fall in line, with RBI's directives.
In the interim, RBI may reiterate its original directions of July 2, 2012 (reiterated via its Master direction circular of March 03, 2016 and April 1, 2025) and revisit the entire issue.
RBI's directions are clear and but are not practised by the whole market (banks and NBFCs that are accepting public deposits) scrupulously. There is a certainty. No transaction of this nature should be executed or accounted for on a holiday.
These banks made holiday redundant. If RBI intends to do away with the concept of holiday, it may explore the possibility of issuing such directions and inform all accordingly.
Such authority is not vested with banks nor should it be vested/conferred on banks. The situation would be messy. The finance sector should have one or a similar pattern.
These mischievous banks interpret the RBI's directions as they please, and such acts are coolly endorsed by the banks' PNO and internal ombudsman. At times, these banks push the blame on their software design or quote 'non-existent lines' by falsely referring to RBI's existing circular number and further support it with stupendous logic.
I reiterate:
This practice should be curbed. Either the regulator should succumb or banks should fall in line if it is afraid of regulatory directions.
To handle situations like unscheduled/sudden holiday also there is a laid-down process, and all players in the respective sector follow it uniformly.
Probably, the bank is confident that the RBI will not take action against such an intentional act of the bank.
To defend the act, the official has attempted to misdirect the complainant using RBI's name. This is highly objectionable. You may peruse the text of the communication below addressed to the PNO of the bank.
Implementing something that is a gross violation of the RBI directors and defending it by a person giving absurd reasons is completely unacceptable. I hope and wish you will act swiftly and advise the bank to fall in line with the RBI's directions.
I hope this matter will not get pushed to the integrated ombudsman, who has no mandate to deal with such matters as per the RBI IOS scheme-2021.
The purpose of writing the instances in great detail is to make readers/bank depositors aware of the type of arguments banks put forward as a false defense and impress upon clients as to how the bank is justified in their acts.
It is done to encourage FD clients to pursue the matter with the banking regulator to discipline the banks and compel them to adhere to its legitimate mandatory orders. Such banks should be fined with a huge penalty such that such acts of intentional violations, fraudulent reasoning will stop.
I also wish this to be arrested from spreading, if not already spread by now, as it goes against the regulatory directions and also the intent behind the issue of such directions by the RBI.
All other financial sector entities respect the concept of holidays, including unscheduled holiday/s and conventions. Here, there is a specific directive, but it is often breached by some extra-smart banks.
In brief, I suggest RBI:
1. Reinforce and Clarify Existing Directions:The Reserve Bank of India should reaffirm its directions issued on July 2, 2012, and reiterated through the Master Directions of March 3, 2016, and April 1, 2025. It is critical to clarify that fixed deposits maturing on a bank holiday or non-business day shall be redeemed on the immediate succeeding working day, with interest paid for the holiday period at the contracted FD rate. This will ensure consistency and avoid ambiguity in bank practices.
2. If RBI wishes to revisit the directives
with proactive steps considering operational technology, it should balance with customer rights, practices in related financial markets like the debt market and the spirit of the original guidelines.
3. Consumer Awareness and Accessibility:
RBI may consider directing banks to print on their FD advices, receipts an advisory to educate about their rights in cases of FD maturities falling on holidays or non-business days.
4. Alignment with conventions of Fixed Income/Bond Market:If it explores and attempts to harmonise fixed deposit maturity and redemption conventions with other fixed income instruments like corporate debentures and government securities, it is important to note the fundamental differences, like Govt Security as an instrument, to avoid imposing unsuitable conventions on FDs.
5. Strict Implementation and Oversight:RBI must strengthen monitoring and enforcement mechanisms to ensure that banks comply strictly with regulatory directions on FD maturities and interest payments. Any deviations or non-compliance should attract timely and transparent actions and penalties.
6. Encourage Industry Consultation:RBI may initiate consultations with banks, industry experts, and consumer interest groups if it revisits and, if needed, to the existing guidelines without compromising depositor financial interests. Such directions should be applied prospectively (new deposits).
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