BANK CUSTOMERS IN DOLDRUMS

People keep their money in fixed deposits with banks because they trust the banking channel more than any other investment avenue. This is more than apt in the case of senior citizens who are sixty and above. They do it because they are risk averse and they are uncertain of their future. They park all their available resources in fixed deposits for augmenting their income through the interest received on deposits.  Most of these depositors keep their money in fixed deposits for a period of one year for reasons best known to them. However the deposits stay with the banks for longer periods of time as the depositors prefer renewal of the deposits on maturity than their withdrawal. They are aware that fixed deposits with banks ensure a liquidity that is not available elsewhere. The renewal is automatic for the original period in the event of no specific instructions from the depositors.

Demonetization and consequent inflow of phenomenal deposits have made the banks take their depositors for a ride. They are now flush with funds and the depositor is no longer the King. They have done a great disservice to the depositors by lowering the interest paid on fixed deposits for a period of one year. Adding insult to injury banks have fixed a higher rate of interest on deposits for a period of 211 days to less than one year that is up to 364 days whereas the depositor is eligible only for a lower rate of interest   if the deposit is held with the banks for 365 days or more. The table here is telltale.

Interest Rates on Retail Domestic Term Deposits (Below Repees One Crore) W.E.F. 17.11.2016

 (All figures in % per annum)

Tenors	Existing for Public w.e.f. 24.10.2016	Revised For Public w.e.f. 17.11.2016	Existing for Senior Citizens w.e.f. 24.10.2016	Revised for Senior Citizens w.e.f. 17.11.2016
7 days to 45 days	5.50	5.50	6.00	6.00
46 days to 179 days	6.50	6.50	7.00	7.00
180 days to 210 days	6.75	6.75	7.25	7.25
211 days to less than 1 year	7.00	7.00	7.50	7.50
1 year to 455 days	7.05	6.90	7.55	7.40
456 days to less than 2 years	7.10	6.95	7.60	7.45
2 years to less than 3 years	7.00	6.85	7.50	7.35
3 years to less than 5 years	6.50	6.50	7.00	7.00
5 years and up to 10 years	6.50	6.50	7.00	7.00

It is obvious that when deposits for a period of one year are auto renewed on maturity by banks for the reason that the depositor has not furnished any specific instructions  the  renewal is done for one year that is 365 days whereby the depositors strike a huge loss. The profit banks earn without any effort is huge.

The depositors mostly take their deposit receipts to banks for renewal after some gap from the date of maturity and most of them are oblivious to the loss they sustain due to the unsavoury role banks play with their deposits and their lives. It is clear from the table that banks punish people who keep their funds in long term deposits.

Apart from this ignominious act, when banks reduce rates of interest on Housing Loans they require the borrowers to approach them and remit a fixed quantum of interest as well as charges for reduction in the rates of interest on Housing Loans. Most of the borrowers never go through these hassles. Banks are the gainers for the reason they do not reduce the rates of interest on Housing Loans unless the borrowers satisfy their wrongful diktat. The net effect is nothing but the majority of the borrowers are excluded from the benefits that ought to be accruing to them on account of reduction in rates of interest on Housing Loans proclaimed with much fanfare.

Banks prosper while the customers, both depositors and borrowers, decline. Long live  profitability of banks.