RBI’s on Auto re-designation of banking a/cs into Senior Citizen Account – No clarifications
Please peruse below the text of an important and relevant portion of a simple query, supported with a clear example, I posed to DBR (RBI). The circular below was issued by RBI following the policy statement of Governor RBI in Oct 2017 under the title:
Under title Banking Facility for Senior Citizens and Differently abled Persons (RBI Cir DBR.No.Leg.BC.96/09.07.005/2017-18 November 9, 2017).
“Banking Facility for Senior Citizens (d) Automatic conversion of status of accounts Presently, in some banks, even fully KYC - compliant accounts are not automatically converted into ‘Senior Citizen Accounts’ based on the date of birth (DOB) maintained in the bank’s records. Banks are advised that a fully KYC compliant account should automatically be converted into a ‘Senior Citizen Account’ based on the date of birth available in bank’s records”.
When account/s is/are classified into Senior Citizen Account/s, the account holder becomes eligible for the following benefits:
Door Step Banking at concessional rates, ease of filing form 15H, ease of submitting Pensioner’s Life Certificate, use dedicated Counters/Preference to Senior Citizens and reliefs in some service charges, minimum balance norms, in addition to additional interest on term deposits, etc. (exception some PSU banks call for higher minimum balance in senior citizen account, some have fixed lowever balance for senior citizen pensioner)
I expected the intent would be clarified after a couple of reminders etc. Despite rigorous persuasion for about 2 years including registering grievance on Central Govt Portal (CPGRAMS), Clear directions from DFS (MoF), GoI, and Prime Minister’s Office (PMO) directing RBI to address it RBI has dismissed the grievance terming it as a suggestion/personal view. If such is the attitude of RBI I wonder, where we are heading.
Text from the query:
“These days no Bank opens the deposit account of any customer without proof of date of birth’. Any ‘identity document’ obtained for KYC invariably has a date of birth on it.
In the context of the subject line of the above circular while advising banks to automatically convert CASA as well as term deposit accounts of individual customers to senior citizens' account based on the date of birth mentioned in the Bank's records your intent behind issuing such directions appears to be little unclear.
Unless RBI directions are very clear my experience is that banks do not take proactive steps to look at the intent of RBI directions or seek clarifications (or give necessary benefit to the customers on their own). I, therefore, feel that RBI needs to revisit the subject of ‘intent’ and give clear directions such that without ambiguity Bank would follow them.
Inter-alia, RBI may clarify:
In respect of joint accounts: when the first name depositor becomes a senior citizen whether can such account be converted into senior citizens account and upon death/exit of such first-named senior citizen should there be a provision to re-designate so-called senior citizen joint account to a normal account.
Banks selectively offer a higher rate of interest on term deposit held by senior citizens (also where such deposit is held in the name of senior citizen jointly with senior/non-senior citizen and that senior citizen's name in the account appears first, bank don't offer a special interest rate to CASA account of senior citizen). Banks fixed deposit policies clearly state that even its the senior citizen's deposit is continued after the death of senior citizen till its due date fixed deposit would carry the senior citizens /preferential ( being contracted rate of interest).
The intent behind directing auto conversion of deposits especially term deposits probably is that banks step up the rate of interest on such term deposits for the residual period of maturity (unexpired period).
Probably RBI expects that during the currency of FD banks pay interest in the following manner:
From date of deposit till 1st named depositor becomes a senior citizen at contracted rate + from 1st depositor’s becoming senior citizen, till contracted maturity at the interest rate applicable to the aggregate tenure of such term deposit, as prevailing on the date of placing such deposit as if it was the deposit of as a senior citizen, This is to pass on the benefit of a higher rate of interest to the customer who has now become a senior citizen.
Had that not been intended, in my view, it doesn't serve any purpose to advise banks to re-designate CASA accounts only (as for senior citizen CASA account there is no component of higher interest) and not re-designate/convert FDs.
However, if the intent is otherwise it should be clearly stated whether the original contracted (non-preferential) interest rate would continue to this automatically converted/re-designated senior citizens account, till its contracted maturity date and it is at the time of auto-renewal, if any, the interest rate applicable to senior citizens as prevailing on the due date may be applied.
I will clarify with an example. On 01-06-2019 a person deposits for 1 year @ 8.00% p.a (For senior citizen deposit rate then was 8.5% p.a for this period). He became a senior citizen on 01-09-2019.
Till then the deposit had run for 3 months. In the above case, this customer would get an interest rate at 8.00% p. a (not treated as pre-closure of deposit) till31-08-2019 and will get 8.5% p.a interest from 01-09-2019 to 31-05-2020 (9 months @ 8.5% p.a). The interest rate prevailing on 01-06-2019 for a 1-year deposit, irrespective of interest rate/s prevailing on 01-06-2019 and/or 01-09-2019 for 3 or 9 months).
If the intent is, that deposit to run at 8.00% till it runs full tenure, it will serve no purpose nor it would be a facility/benefit except that submission of proof of age is not required. The benefit would apply to new/fresh deposits and not to other deposits running through their original tenure. Thus under one customer ID customer will be paid two rates (senior and non-senior citizen category) of interest.
If the intent is that the bank would renew (if such deposit is subject to auto-renewal) it as a senior citizen deposit from 01-06-2020 without any request from the customer it is superfluous (as there is no financial benefit to the customer till renewal of deposit).
If the intent is that banks should give interest at the applicable rate for 3 months as prevailing on 01-06-2019 (date of placement of deposit without a pre-payment penalty) and pay interest for the rest of 9 months at the rate applicable to senior citizen’s deposit of 9 months as prevailing on 01-06-2019 or 01-09-2019 it will defeat the purpose.
The CBS/system has a database from the time the FD account is booked. Whenever any FD is booked and the system finds the tenure of the FD crosses/rolls over his/her date of attaining the 60 years such accounts it can split store the info in the ‘data table created for accrual of interest’ appropriately. The aggregate/overall contract period on the relevant reference date is considered for applying the interest rate. The relevant reference date will be the same for the computation of interest for split periods. It will be at a certain rate (relevant to the aggregate tenure as prevailing on the reference date) up to depositor’s attaining the age of 60 years and later, at a preferential rate (relevant to the aggregate tenure as prevailing on the same reference date i.e date of deposit placement date or date of latest renewal of the Fixed Deposit in the subject). Interest compounding etc would have the same pattern. This can be easily done while tweaking the program a little, through a workaround. This happens only once in each bank in the life of any customer and is easily doable.
In the fixed income securities market in respect of bonds and debentures where the interest rate is flexible (linked to a reset date) or in cases where step-up/step down (fixed rate) rate interest is agreed, on pre-set parameters, systems are dynamic enough to accommodate these functions and should not be difficult to banks to implement it for FDs.
So if that were intended, I wanted RBI to direct explicitly to banks otherwise banks will not make additional efforts to make changes to the master program and pass on the benefit (as we are seeing now), I suggested RBI.
If that was not the intent, RBI could have clarified alongside the query itself (example), wrote to me, and could have informed banks of this appropriately.
In my view, ‘no need to not submit the proof of age a fresh’ is no benefit/facility that needs RBI to issue a directive, it would be taken care of by banking software when it has DOB data.
In the computerized environment such step-up of rate and step down of Rate from any given date should be easily doable/possible and can be programmed as it is normally done in case of step-up bonds or debentures etc issued by banks (to meet its capital requirements under Tier 1 Tier 2 bonds category) and PSUs.
Complete clarity on this matter is needed as would avoid disputes between the banks and senior citizens in interpreting this directive.”
Status a few months later:
From my experience, I knew that it is difficult to get a clear answer to any such query. It will get tossed between RBI’s department for years together.
I did wonder whether such clarifications would be provided to a query from an ordinary customer so that banks will not interpret it as per their commercial convenience and deprive the benefit intended while issuing the directive.
After one year, in late 2019, when I became a senior citizen, I had to fight with every bank to partially enforce my right and for auto conversion without giving a request letter of proof of age again (though each bank did have my DOB on records). No bank gave me the benefit of senior citizen rate of interest on the FDs till their original expiry.
At the time of renewal/including cases of auto-renewal of each FDs, I had to quote and insist on senior citizen rate.
I understand no bank gives senior citizens a rate of interest even at the time of renewal of their FDs (post-qualifying as a senior citizen) unless each such person fulfills the bank's internal requirement/s.
Whether RBI wants banks to pass on such benefit under the deposit/s already running its current tenure? If RBI intends that Banks should walk this extra mile it could do so. In such a case it will be a real benefit to the customer and would have been in line with equity and justice.
For the sake of discussions, we may assume that RBI did not anticipate these situations to come up following its vague directions. However, when the matter was brought up to its notice (being the issuer of these directions and banking regulator) the authority needed to offer proper clarificatory directions so that the directions could be implemented properly and uniformly and the intended benefit is passed on.
Not clarifying concerning the query as to what issuer intents from the directions, even after dozens of reminders to seniors, references to governor RBI, DFS Ministry of Finance, taking up it as a grievance on CPGRAMS portal of Government of India, and finally with Prime Minister's Office, RBI did not offer a simple clarification on its intent. RBI received clear directions from each of them to address this grievance in specific.
RBI more particularly received directions from each of them reading as:
“The complaint of the petitioner may be re-examined properly at an appropriate level for redressal. Please issue acknowledgment and furnish a reply to the petitioner after examining and settling the complaint as per the rules. Please send your ATR and upload a copy of the reply sent to the petitioner on CPGRAMS”.
Firstly, RBI refused to acknowledge it as a grievance. Later every time it continued to give an absurd and robotic reason for the disposal of grievance stating that the grievance is a request/suggestion/ general observation.
The intent of direction given over 3 ¼ years ago, as far as a matter of senior citizen is concerned remained unfulfilled, due to RBI’s not giving proper clarification (rational or irrational) to all the banks for its uniform implementation, each bank continues to do what it has been doing and/or what intends to do and commercially and/or ethically fits in thinking of their respective managements.
Officers at the Dept in RBI are either chicken-hearted or adopt a cold shoulder treatment to the cause of senior citizens. Their delaying tactics and red tape is well known. The pity senior citizens are forced to listen to the mediocre everywhere.
Customers who crossed the age of 60 years are being harassed by the banks. Auto conversion of their accounts into a senior citizen, benefit of higher interest on FD, concessions minimum balance, concession on submission of 15H, certain reliefs on service charges, etc are denied to them till they give proof of age again and formally approach the bank with a duly signed letter for such re-designation.