Banks Cannot Cut Fixed Deposit Interest Unilaterally, Says Allahabad High Court

Allahabad High Court on Fixed Deposit Interest Rates

The Allahabad High Court has ruled that banks cannot reduce the contracted rate of interest on Fixed Deposit Receipts (FDRs) after they have been issued by citing internal circulars or policy changes.

Court’s Observation

The bench emphasized that once a bank enters into a contract with a customer for a fixed deposit at a specific interest rate, that rate becomes legally binding for the duration of the term. Any subsequent internal circulars, guideline revisions, or administrative instructions cannot retroactively alter these contractual terms.

Case Background

The ruling arose from a petition filed by a depositor whose fixed deposit rate was lowered unilaterally by the bank after issuance. The bank argued that an internal circular allowed it to modify interest rates on existing FDRs. The court rejected this argument, holding that private circulars do not override a legally binding contract.

Legal Principle

Quoting the judgment:

“The rate of interest, once contracted, forms an integral part of the agreement and cannot be modified unilaterally by one party after execution.”

The court stressed that allowing banks to do so would undermine depositor confidence and financial fairness.

Implications

This decision reinforces depositor protection by confirming that banks are obligated to honor the agreed interest rate on fixed deposits until maturity, regardless of later internal policy adjustments.

Author’s Summary: The Allahabad High Court ruled that banks cannot retroactively cut fixed deposit interest rates using internal circulars, reaffirming depositors’ contractual rights.

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LiveLaw LiveLaw — 2025-11-29

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