Allahabad HC bars banks from cutting fixed deposit rates after issuance, even post merger
In the case, PNB lowered the contracted interest rates on certain FDRs from 10.75% to 9.25% and from 10.25% to 8.25%. The affected depositors, including the family of a retired bank employee, challenged the move, arguing that such retrospective reductions were not supported by law or regulatory guidelines.
- Dec 20, 2025,
- Updated Dec 20, 2025 12:17 PM IST
The Allahabad High Court has ruled that banks cannot unilaterally reduce interest rates on fixed deposit receipts (FDRs) after they have been issued, even in cases involving bank mergers or subsequent policy changes. The ruling stems from a dispute in which Punjab National Bank (PNB) reduced interest rates on FDRs originally opened with Oriental Bank of Commerce (OBC) following the merger of the two banks.
In this case, PNB lowered the contracted interest rates on certain FDRs from 10.75% to 9.25% and from 10.25% to 8.25%. The affected depositors, including the family of a retired bank employee, challenged the move, arguing that such retrospective reductions were not supported by law or regulatory guidelines. The Allahabad High Court, in its judgment delivered on November 17, 2025, directed banks to honour the interest rates originally agreed upon for the entire tenure of the fixed deposit, reinforcing the contractual rights of depositors.
The court closely examined the bank’s reliance on Reserve Bank of India (RBI) master directions and internal circulars. It held that these provisions do not authorise banks to retrospectively alter interest rates already specified on FDRs. The court observed: “The provisions relied upon by the respondents govern only the grant of discretionary additional interest and eligibility conditions; they do not permit reduction of a previously agreed rate of interest mentioned on the FDR.”
The judgment clarified that exceptions could arise only if there was an explicit contractual clause or a statutory scheme overriding the agreement, neither of which applied in this case.
The court further noted that internal bank circulars relating to additional interest for staff are merely enabling in nature and cannot be used to change agreed FDR terms. It stated that there was no allegation of fraud by the depositors and that administrative errors by bank officials could not justify unilateral rate reductions.
Emphasising depositor protection, the High Court held that fixed deposit holders cannot be made to bear losses arising from internal mistakes or policy shifts by banks.
Commenting on the ruling, Rahul Sundaram, Partner at IndiaLaw LLP, said the court reaffirmed that RBI circulars regulate only optional additional interest and do not allow banks to revise interest rates on already-issued FDRs. “The Allahabad High Court ruled that the bank cannot retroactively cut the 10.75% or 10.25% interest rate printed on the fixed deposit receipts. The RBI circulars relied upon merely regulate optional additional staff interest and do not permit unilateral revision of an already issued FDR. Following its February 24, 2023 decision in the petitioners’ sister’s case, the Court directed the bank to pay the full originally contracted interest up to maturity,” added Sundaram.
Deepika Kumari, Partner, King Stubb & Kasiva, Advocates and Attorneys, said the ruling reinforces a fundamental principle governing the bank–customer relationship. “The sanctity of a contracted fixed deposit rate cannot be diluted by unilateral action. By holding Punjab National Bank’s retrospective reduction of the Jain family’s FD interest rates as illegal, the Court has sent a clear message that mergers, internal circulars or regulatory interpretations cannot override the binding terms of an existing agreement. The judgment strengthens depositor confidence, underscores the inviolability of contractual commitments, and ensures banks maintain transparency and fairness in their dealings.”
The Allahabad High Court has ruled that banks cannot unilaterally reduce interest rates on fixed deposit receipts (FDRs) after they have been issued, even in cases involving bank mergers or subsequent policy changes. The ruling stems from a dispute in which Punjab National Bank (PNB) reduced interest rates on FDRs originally opened with Oriental Bank of Commerce (OBC) following the merger of the two banks.
In this case, PNB lowered the contracted interest rates on certain FDRs from 10.75% to 9.25% and from 10.25% to 8.25%. The affected depositors, including the family of a retired bank employee, challenged the move, arguing that such retrospective reductions were not supported by law or regulatory guidelines. The Allahabad High Court, in its judgment delivered on November 17, 2025, directed banks to honour the interest rates originally agreed upon for the entire tenure of the fixed deposit, reinforcing the contractual rights of depositors.
The court closely examined the bank’s reliance on Reserve Bank of India (RBI) master directions and internal circulars. It held that these provisions do not authorise banks to retrospectively alter interest rates already specified on FDRs. The court observed: “The provisions relied upon by the respondents govern only the grant of discretionary additional interest and eligibility conditions; they do not permit reduction of a previously agreed rate of interest mentioned on the FDR.”
The judgment clarified that exceptions could arise only if there was an explicit contractual clause or a statutory scheme overriding the agreement, neither of which applied in this case.
The court further noted that internal bank circulars relating to additional interest for staff are merely enabling in nature and cannot be used to change agreed FDR terms. It stated that there was no allegation of fraud by the depositors and that administrative errors by bank officials could not justify unilateral rate reductions.
Emphasising depositor protection, the High Court held that fixed deposit holders cannot be made to bear losses arising from internal mistakes or policy shifts by banks.
Commenting on the ruling, Rahul Sundaram, Partner at IndiaLaw LLP, said the court reaffirmed that RBI circulars regulate only optional additional interest and do not allow banks to revise interest rates on already-issued FDRs. “The Allahabad High Court ruled that the bank cannot retroactively cut the 10.75% or 10.25% interest rate printed on the fixed deposit receipts. The RBI circulars relied upon merely regulate optional additional staff interest and do not permit unilateral revision of an already issued FDR. Following its February 24, 2023 decision in the petitioners’ sister’s case, the Court directed the bank to pay the full originally contracted interest up to maturity,” added Sundaram.
Deepika Kumari, Partner, King Stubb & Kasiva, Advocates and Attorneys, said the ruling reinforces a fundamental principle governing the bank–customer relationship. “The sanctity of a contracted fixed deposit rate cannot be diluted by unilateral action. By holding Punjab National Bank’s retrospective reduction of the Jain family’s FD interest rates as illegal, the Court has sent a clear message that mergers, internal circulars or regulatory interpretations cannot override the binding terms of an existing agreement. The judgment strengthens depositor confidence, underscores the inviolability of contractual commitments, and ensures banks maintain transparency and fairness in their dealings.”