Can you murder the same person twice – bank managers can. The customer is already – half dead when he approaches the bank for a loan or aid. The banker seals the coffin and signs the death warrant just to make sure that the person inside — doesn’t come out, no matter how hard he/she tries.
The banking system is blatantly unfair or biased towards customers
The banking industry has often been criticised for its morally corrupt and unfair business practices. Here’s why:
1. Complex jargon: Banking products and services have complex terms and conditions, which make it all the more difficult for customers to understand what they’re getting into.
2. Unfair fee structure: A restaurant is required to put up a notice board on its premises mentioning the rates it charges for different products and services, but banks are allowed to do whatever they wish. Banks charge exorbitant fees for services, such as overdrafts, late payments, and account maintenance charges, even without the knowledge and consent of the customers.
3. Lack of transparency: Banks are not transparent about their practices, such as hidden fees, interest rate changes, or account restrictions.
4. Unequal bargaining power: Banks often have more bargaining power than customers, which leads to unfair and one-sided contract terms or conditions that favour the bank.
Also Read: The dark, hidden and ugly side of banks in India – Part 1
5. Limited consumer protection: While there are regulations to protect consumers, they don’t go far enough in preventing unfair banking practices.
Banks often engage in unethical practices and unilaterally change the mutually agreed terms with little or no prior notice, leaving customers in difficult situations. As a result customers often have no choice but to accept the unfair and exploitative terms because of their dependence on the bank for services like loans, credit, or even basic banking facilities.
Are banks allowed to go back on prior commitment?
A classic example of this is how Industrial Development Bank of India (IDBI), a development financial institution floated deep discount bonds in the early 90s with a maturity period of 25 years. IDBI made money till the market conditions were favourable but once the market conditions became rough, it suddenly decided close shop and exit after paying minimal refund to the customers.
In 2023, the District Consumer Disputes Redressal Commission in Ernakulam ruled that Canara Bank engaged in unfair trade practices by deducting insurance premiums from a customer’s account without providing the insurance policy or premium certificate. The bank failed to furnish the policy details despite the customer’s repeated requests. As a result the customer couldn’t claim medical benefits. The Commission ordered the bank to reimburse the medical expenses incurred and compensation for distress and legal costs.
Here are a few more examples of how blatantly unfair or biased banking practices are allowed to happen in India:
1. Changing Interest Rates on Loans and Credit Cards
Banks frequently change the interest rates on loans, credit cards, and mortgages without informing customers in advance. These changes are often made in the fine print of agreements, and customers can be left with little recourse if they cannot pay the higher amounts.
The banks are very prompt and particular when it comes to charging interest, arrears, late payment charges and penalty – when the customer is at fault but when the bank (meaning bankers) make a mistake – it’s called a systemic error and no compensation is offered to the customer – with retrospective effect – from the day when the error in judgement was noticed.
Home Loan Interest Rate Changes
Many home loan customers in India have complained about the unilateral increase in interest rates on floating-rate loans. While home loan agreements state that the interest rate is tied to a benchmark (such as the base rate or MCLR), customers often find that banks increase these rates arbitrarily, even when the Reserve Bank of India (RBI) lowers the repo rate. This can lead to significantly higher monthly repayments.
Vishnu Bansal, took a home loan from ICICI Bank in November 2005 at a floating interest rate of 8.75%. Over time, the bank increased the interest rate to 12.25% without informing him, leading to an extension of the loan tenure from 240 to 331 months.
Also Read: The dark, hidden and ugly side of banks in India – Part 2
Additionally, the Allahabad High Court observed that despite guidelines from the Reserve Bank of India (RBI), banks often impose arbitrarily high interest rates on customers. The court noted that the RBI has been a “mute spectator” while banks charge excessively high rates, highlighting a lack of effective regulation.
These instances highlight the challenges faced by borrowers with floating-rate home loans in India, particularly regarding transparency and communication about interest rate changes.
Credit Card Interest Rate Hikes
In some cases, credit card companies have increased interest rates without proper notice to the cardholder. Customers who have been paying on time and maintaining a good credit score can suddenly find their interest rates raised, leading to higher payments on existing balances.
In December 2024, the Supreme Court ruled that banks could charge interest rates exceeding 30% per annum on credit card dues. This decision overturned a previous National Consumer Disputes Redressal Commission (NCDRC) ruling that had deemed such high rates as unfair trade practices. The Court held that the NCDRC’s observations interfered with the Reserve Bank of India’s (RBI) delegated powers and that banks had transparently communicated the terms, including interest rates, to customers.
2. Changing Terms of Savings Accounts & Fixed Deposits
Banks can unilaterally change the terms of savings accounts or fixed deposits, particularly in terms of interest rates, charges, and withdrawal conditions. While these terms are usually stated in the initial agreement, banks are known to have altered them after the customer made the initial commitment.
Customers who have invested large sums in fixed deposits with a specific interest rate can see their rates unilaterally reduced when the bank revises its rates, often without providing adequate notice. While many banks claim that they are legally allowed to alter the interest rates, customers end up receiving lower returns, which they had not anticipated at the time of investment.
Both State Bank of India (SBI) and HDFC Bank have made adjustments in their fixed deposit (FD) interest rates in recent years – even discontinued certain schemes.
SBI Fixed Deposit Interest Rate Changes
SBI discontinued its special fixed deposit schemes like the “Monsoon Special Deposit Scheme” which offered higher interest rates for deposits during the monsoon season. However, the scheme was phased out after March 31, 2023.
SBI revised its FD interest rates across various tenures. For deposits maturing in 1 year to less than 2 years, the interest rate was adjusted to 6.8% for the general public and 7.3% for senior citizens as part of the bank’s effort to align with prevailing market conditions and regulatory guidelines.
HDFC Bank Fixed Deposit Interest Rate Changes
In November 2023, HDFC Bank revised interest rates on its non-withdrawable fixed deposits. For tenures between 12-15 months, the interest rate was set at 7.45%, and for 1-18 months, it was 7.2%. Non-withdrawable FDs typically offer higher rates but lack premature withdrawal facilities.
HDFC Bank also had special deposit offers that provided additional 0.25% premium under a special scheme valid from May 18, 2020, to March 31, 2023. However the special offer were discontinued after their respective validity periods.
Savings Account Charges
Banks frequently introduce new charges, such as monthly maintenance fees or penalty fees for falling below a minimum balance, without giving customers clear prior notice. Customers may have opened accounts with the expectation of free banking services, only to find that their accounts are subject to charges they hadn’t agreed to.
As Congress President Mallikarjun Kharge was quoted as saying, banks collected around Rs 43,500 crore rupees from the public as penalty for non-maintenance of minimum balances in savings accounts.
Public sector banks (PSBs) collected approximately Rs 8,495 crore in penalties over the past five years (FY2020 to FY2024). This means an averages of about Rs 1,699 crore annually. In the financial year 2023-24 alone, the banks levied Rs 2,331 crore in penalties, marking a 25.63% increase from Rs 1,855.43 crore in FY2022-23. Punjab National Bank (PNB) led with collections of Rs 633.4 crore, followed by Bank of Baroda with Rs 386.51 crore, and Indian Bank with Rs 369.16 crore.
It’s noteworthy that the State Bank of India (SBI), the country’s largest lender, discontinued such penalties after FY2019-20. Despite SBI’s cessation, other PSBs continued to impose and even increase these charges. Between FY2018 and FY2023, major public and private sector banks accumulated over Rs 21,000 crore from customers for non-maintenance of minimum balances, additional ATM transactions, and SMS services.
These practices have sparked discussions about the transparency and fairness of such charges, especially considering that many customers may not be fully aware of the minimum balance requirements or the penalties associated with non-compliance.
3. Unilateral Changes to Loan Tenure and Repayment Terms
Banks sometimes alter the terms of a loan agreement by changing the repayment tenure or modifying other conditions, leaving customers in a position where they either have to accept the new terms or face penalties.
Modification of Loan Repayment Terms
In some cases, banks change the repayment schedule of personal loans or car loans without the customer’s consent. For instance, a customer might be paying a loan on an EMI basis, and the bank might unilaterally extend the tenure, resulting in reduced EMI amounts. However, this increases the overall interest paid on the loan, trapping the customer in a prolonged repayment cycle. This kind of change often happens without proper consultation, leaving the customer with no option but to accept the revised terms.
In 2024, the Chandigarh State Consumer Disputes Redressal Commission ruled against HDFC Bank for unilaterally converting a housing loan into a Dropline Overdraft (DOD) facility without the customer’s knowledge or consent. This unauthorized change led to issues with tax rebates and unexpected debits from the customer’s account. The Commission ordered the bank to revert the loan to its original housing loan structure and compensate the customer for the inconvenience caused.
Increase in Equated Monthly Instalment (EMI) without borrower’s consent:
A borrower reported that their bank increased the EMI from Rs6,700 to Rs7,000 without prior consent, citing the Reserve Bank of India’s (RBI) moratorium guidelines. Despite the borrower continuing to pay the original EMI, the bank imposed additional charges. Legal advice suggested that the borrower should formally contest, as the unilateral change in EMI without consent was unjustified.
Unilateral Changes in Floating Interest Rates Affecting Loan Tenure and EMI:
In 2021, the Delhi Consumer Commission ruled that banks must obtain borrowers’ consent before altering interest rates on floating-rate loans. The case involved ICICI Bank increasing the interest rate on a customer’s home loan from 8.75% to 12.25% without informing the borrower, resulting in an extended loan tenure from 240 to 331 months. The Commission deemed this practice an unfair trade practice, emphasizing that banks are obligated to inform and seek consent from borrowers before making such changes.
RBI Directive on Interest Rate Changes without borrower consent:
In August 2023, the Reserve Bank of India (RBI) pulled up banks for increasing interest rates on floating-rate personal loans leading to longer loan tenures or higher EMIs without proper communication or consent from borrowers. The RBI mandated that banks provide borrowers with the option to switch to fixed interest rates at the time of interest rate resets, aiming to enhance transparency and protect borrowers’ interests.
These instances underscore the importance of transparency and customer consent in modifying loan terms. Borrowers are advised to thoroughly review loan agreements, stay informed about any communications from their lenders, and assert their rights to ensure that any changes to loan terms are made with their explicit consent.
4. Unilateral Changes to Credit Card Terms and Fees
Credit card companies have been known to change credit limits, interest rates, and fees with little to no notification to customers. Often, these changes leave customers exposed to additional costs or charges that they did not anticipate.
Many credit cardholders have complained that banks introduced annual fees, maintenance charges, or additional penalties for non-payment or late payment without adequate prior notice.
HDFC Bank revised its credit card fee structure (effective August 1, 2024), making the following changes that affected cardholders:
- Late payment fee ranging from Rs100 to Rs300, depending on the outstanding amount.
- The cost to redeem rewards points increased to Rs 50, adding an expense to the rewards redemption process.
- Customers using revolving credit facilities faced a finance charge of 3.75% per month, calculated from the transaction date until the outstanding balance was fully paid.
- These changes were made without providing a one-month prior notice to customers, as mandated by the Reserve Bank of India (RBI) guidelines.
Similarly Axis Bank also made several changes in the general terms and conditions for most of its credit cards (effective December 2024). These included:
- Additional charge of Rs 100 if the Minimum Amount Due (MAD) was not paid by the Payment Due Date (PDD) for two consecutive billing periods.
- The minimum fee for cheque returns and auto debit reversals was revised to Rs 500.
- Monthly interest rate was increased to 3.75%, resulting in higher costs for customers who maintained a balance on their cards.
These changes were introduced without providing customers with adequate prior notice, leading to concerns about transparency and customer consent. In fact some banks arbitrarily reduce credit limits leaving cardholders in a lurch.
- Even as recently as Feb-Mar 2025, ICICI Bank reduced the total credit limit and cash limit of some credit cards without informing the cardholder. For instance, the total credit limit was reduced from Rs 38,000 (in Jan 2024) to Rs 20,000 (in March 2025) and cash limit from Rs 3,800 (in Jan 2024) to Rs 2,000 (in March 2025) – without assigning any reason. The point to be noted is that the card had an initial credit limit of Rs 45,000.
- In July 2023 some SBI Card customers noticed reductions up to 80% of their credit limits without any clear communication from the bank.
- In June 2021, some HDFC Bank credit cardholders experienced reductions in their credit limits by up to 50%.
- Similarly in April 2020, Axis Bank reduced the credit limits of about 200,000 customers because of low usage, credit behaviour or other internal assessments. In some cases the cuts were up to 90%. The saving grace however was that the affected customers were notified via SMS – which usually doesn’t happen.
Regulatory perspective:
While banks have the discretion to adjust credit limits based on factors like spending behavior, payment history, and broader economic conditions, it is expected that banks provide adequate notice and clear communication regarding any modifications to credit limits to maintain transparency and trust.
Changes in reward programs:
In some cases, banks have altered the terms of their rewards programs on credit cards without prior notice, reducing the points that can be earned or changing how those points can be redeemed. Customers who relied on these reward programs to get benefits like travel or cashback suddenly find themselves with fewer rewards or more stringent conditions to redeem them.
5. Unilateral changes to loan default penalties and charges
Banks sometimes increase penalties adding to the financial burden on customers already struggling to make payments. Customers often report that after missing a payment or defaulting on a loan, the bank raises the penalty charges, resulting in higher overall debt. For instance, a penalty that was initially Rs500 may suddenly increase to Rs 2,000 or more, on the bank’s discretion.
In 2019, HDFC Bank increased the penalty charges for loan defaults without prior notice to customers. Customers were notified of the increased penalties only after they appeared on their billing statements, causing dissatisfaction and concerns about transparency.
In 2018 ICICI Bank raised the penal charges on loan defaults without adequately informing customers. This abrupt change caught many borrowers off guard who expressed frustration over the lack of communication.
Regulatory Measures: The Reserve Bank of India (RBI) has issued many guidelines to promote transparent and fair lending practices, protect the borrowers and ensure that they are informed about any changes that could affect their financial obligations. For instance:
- The RBI has prohibited banks and non-banking financial companies (NBFCs) from levying penal interest over and above the applicable interest rates. Penalties for loan defaults must be treated as ‘penal charges’ and not added to the interest rate. Additionally, these charges should not be capitalized, meaning no further interest should be computed on them. These guidelines came into effect on January 1, 2024.
- The RBI mandates that banks issue a show-cause notice to borrowers before classifying their accounts as fraudulent, providing at least 21 days for borrowers to respond. This measure ensures that borrowers are heard before severe actions are taken.
6. Non-Refundable fees and charges for services
Banks often impose various charges for services that were initially offered as “free” or included as part of the agreement.
ATM withdrawal fees
Banks charge fees for ATM withdrawals beyond a certain number per month. The penalty can range from Rs20 to Rs25 per transaction. Moreover, some banks charge fees when a customer withdraws from an ATM outside their network, which is not always clearly stated in the agreement.
- SBI offers five free transactions per month at its own ATMs for customers maintaining a balance of up to Rs 25,000. After exceeding the free limit, customers have to pay Rs10 per transaction at SBI ATM and Rs20 per transaction at other banks’ ATMs. However, customers maintaining a balance above Rs25,000 enjoy unlimited free transactions at SBI ATMs.
- Punjab National Bank (PNB) allows five free transactions per month at its own ATMs. After the free limit, PNB imposes a charge of Rs10 per transaction at its ATMs and Rs21 per transaction at other banks’ ATMs.
- HDFC Bank provides five free transactions per month at its own ATMs and three free transactions at other banks’ ATMs in metro cities. After the free limit, HDFC charges Rs21 per transaction at other banks’ ATMs.
- ICICI Bank offers five free transactions per month at its own ATMs and three free transactions at other banks’ ATMs. After exceeding the free limit, ICICI Bank charges Rs20 per transaction at other banks’ ATMs and Rs8.50 for non-financial transactions.
Recent Regulatory Changes: Effective May 1, 2025, the Reserve Bank of India (RBI) has increased the maximum permissible charge for ATM transactions beyond the free monthly limit from Rs21 to Rs23 per transaction. This adjustment aims to offset the rising operational costs of ATM networks.
Hence customers are advised to understanding their bank’s policies regarding free ATM transactions and associated charges to avoid unexpected charges and better manage their banking activities. To avoid additional fees, consider planning the cash withdrawals within the free transaction limits or explore alternative payment methods. And also keep abreast with any communications from the bank regarding changes in fee structures.
Cheque bounce charges
Banks charge hefty charges for bounced cheques, sometimes for amounts as low as Rs 500, which can seem disproportionate to the cost of the transaction. Such fees without prior warning can add to the burden on the customer struggling to make the payment, especially when the transaction amount is quite small.
- SBI charges Rs 500 plus GST for bouncing of SBI cheques due to insufficient funds regardless of the cheque amount. For cheques deposited with SBI (returned unpaid) the charges are Rs150 plus GST for cheques up to Rs1 lakh and Rs250 plus GST for amounts above Rs1 lakh.
- HDFC Bank charges Rs 350 for the first cheque return in a quarter and subsequent returns in the same quarter are charged ₹750 each. For cheques deposited with HDFC Bank (Returned Unpaid) a fee of ₹100 is levied per instance.
There is no uniform policy or standard operating procedures (SOP) laid down by RBI for cheque return charges. As a result customers are left at the mercy of banks.
Regulatory Perspective:
While banks are entitled to levy charges for cheque dishonour, the Reserve Bank of India (RBI) mandates that the fees must be reasonable and transparent. According to RBI guidelines, banks must not impose penalties that are excessive relative to the cost incurred.
7. Unilateral changes to mortgage terms and conditions
Banks often modify terms related to mortgages and housing loans, increasing monthly payments and pushing up the total cost of the property, leaving homeowners with no choice but to accept the new terms.
Some banks in India have switched customers from fixed-rate mortgage loans to floating-rate loans without clear consent, especially after a fixed-rate period expires. This exposes borrowers to fluctuating interest rates, often at a higher rate than originally agreed upon, causing unexpected increases in monthly payments.
The Vishnu Bansal case cited earlier is an example how the interest rate of 7.25% per annum on a home loan of Rs 30.74 lakh from ICICI Bank with an under a floating-rate scheme in November 2005, was unilaterally increased to 8.75% and subsequently to 12.25%, without informing the customer or obtaining his consent. This extended loan tenure from 240 months (20 years) to 331 months (approx 27.5 years) meant an additional liability of Rs 1.62 lakh – just due to hike in interest rate.
The Reserve Bank of India (RBI) has expressed concerns regarding unilateral alteration of interest rates by banks. In August 2023, the RBI announced plans to introduce a framework ensuring transparency and proper communication when resetting equated monthly instalments (EMIs) for floating-rate loans. This framework mandates that lenders clearly inform borrowers about changes in loan tenure or EMI amounts, provide options to switch to fixed-rate loans, and disclose any charges associated with such changes. These measures aim to prevent arbitrary elongation of loan tenures and ensure borrowers are adequately informed.
Conclusion
Banks always hold customers to ransom and have the upper hand when it comes to setting terms and conditions in contracts. Unilateral changes to loan terms, hidden charges, arbitrary interest rate hikes, and penalties put customers in difficult situations, leaving them with few options but to either accept the new terms or face consequences. With limited recourse available and often no transparency, customers are frequently at the mercy of these institutions
