Delhi High Court Orders Bank to Restore FD Interest Rate Amid Controversy Over Sudden Reduction
The Delhi High Court has ruled in favor of a fixed deposit holder after a bank reduced the interest rate on his ₹5.89 crore fixed deposit from 7.75% to 3.5%. In a decision made on September 23, 2026, the court directed the bank to pay the highest applicable interest rate on the deposit, providing relief to the holder.
Background of the Case
The fixed deposit was established following a court order stemming from a dispute between two parties. The parties had chosen arbitration to resolve the matter under Section 9 of the Arbitration and Conciliation Act, 1996. In a 2008 ruling, the Delhi High Court mandated that the ₹5.89 crore in the deposit holder’s bank account be secured in a bank until the dispute was resolved. The court also instructed the bank to create a fixed deposit for the entire amount, ensuring it carried the maximum interest rate.
Initially, the fixed deposit earned interest at rates of 7.75%, 8.25%, and 7.75% over various periods. However, starting January 30, 2018, the bank lowered the rate to 3.5%. The deposit holder contested this reduction, arguing that the bank had no valid justification for the interest rate cut.
Court’s Findings
The Delhi High Court acknowledged that while Clause 3.3 of the RBI circular allows banks to set interest rates on domestic term deposits, this discretion is conditional. Banks cannot discriminate between deposits accepted on the same date, regardless of whether they are held at the same branch or different branches. The court noted that the bank did not demonstrate that the interest rates on comparable fixed deposits had also been reduced to 3.5%.
Additionally, the court highlighted that there was no evidence showing that the bank had informed the deposit holder or the third party that the deposit had matured and required renewal. The bank also did not seek directions from the arbitrator or the High Court regarding the renewal of the fixed deposit.
Regulatory Context
Siddartha Karnani, a partner at King Stubb and Kasiva, explained that while banks may reduce interest on fixed deposits, they must adhere to RBI regulations. According to these rules, when a term deposit matures and is not paid out, the unclaimed amount earns interest at the savings account rate. This was the basis for the bank’s argument in the Delhi High Court case.
However, amendments made in July 2021 state that an overdue deposit earns interest at either the savings account rate or the originally agreed-upon rate, whichever is lower. Co-operative banks follow a different set of guidelines, meaning the applicable provisions depend on the type of bank involved.
Despite having the authority to set deposit rates, banks must not apply these rates arbitrarily. Two fixed deposits accepted on the same date for the same tenure cannot have differing interest rates. Furthermore, banks are required to clearly explain their interest calculation methods and display this information at their branches.
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