Privacy Policy Revision 1

Enactment of new laws in various jurisdictions compels us to post revisions to our privacy policy rather than amending the existing privacy policy.

Our privacy policy initially posted on August 24, 2008 in its revised form from time to time continues to be applicable with following additions and / or revisions effective April 1, 2009:-

1. Any changes with respect to our method of collection and handling of the visitors' Personally Identifiable Information or Sensitive Information will be effective from the date of the post only on data collected on or after that date. For Personally Identifiable Information and Sensitive Information already collected under the previous Privacy Policy, revisions will apply only with the consent of the person submitting the information.
   
2. The Privacy Policy posted on http://www.stoneint.in/privacy.htm is applicable to this blog and has undergone revisions. Please refer to this document for definitions of Personally Identifiable Information and Sensitive Information as well as procedures to opt out of third party data collection.
   
3. Effective April 8, 2009 Google will change the method of delivering ads to this blog as well as our website. Advertisements may be placed based on your interest and / or the contents of our website / blog.
   
4. To enable serving ads based on your interest, Google, as a third party vendor, places cookies in your web browser to determine your interests.
   
5. Google uses the DoubleClick DART cookie that enables it to serve ads to our visitors based on their visit to our site and other sites on the Internet.
   
6. Visitors may opt out of the use of the DART cookie by visiting the Google ad and content network privacy policy.
   
7. Links to OPT OUT procedures are also available on the DoubleClick DART cookie pages.
   

Google or DoubleClick do not collect any Personally Identifiable Information or Sensitive Information to determine your interests. Google, its services providers and its advertisers do not share with us any information that they collect during course of serving ads on our website / blog.

Changes to our Privacy Policy will henceforth be notified as a separate post.

Automatic monthly or annual transactions with your credit cards. Very Dangerous.

Believe it because it has happened to me inspite of being a seasoned credit card user for over 25 years.

Yahoo India as you know is the subsidiary of the international Web Search Marketing Giant Yahoo Inc.

Last year, to be precise, on February 23, 2008 I availed their services to host a website. They gave me a package deal of Rs.1,123 for one year including web hosting and domain name registration. They were accepting only credit card payments and I paid using my VISA card issued by Andhra Bank.

They told me that every year my card will be charged Rs.1,123 for renewal so that I will not have any disruption of service.

Basically there are two services that I subscribed to with Yahoo India Small Business
1) Domain name registration
2) Web Hosting.

Last month when I observed on the business panel that Yahoo will automatically charge me Rs.2,246 for the hosting I decided to go elsewhere. On their help resources they gave the procedure of how I could change my registrar for the domain name. This is mandatory as ICANN does not allow any registrar to bind me to use their services and I am free to change my registrar. I only had to provide a domain transfer coe to the new registrar with whom I wished to avail this service. Yahoo also recommended in thier website that for uninterrupted registration I should make arrangements with new registrar first before cancelling the service with them. They did not provide me the unlocking code on my management panel and when seeking the information it was indicated that I should send them an email. It took 3 reminders before they furnished me with the necessary information so I could approach a new registrar. After that it took 9 days for the domain to be transferred to the new registrar. Later I subscribed to hosting with the new registrar and proceeded to cancel my services with the Yahoo India Small Business. When I went to the business panel of my Yahoo Service, I could view the information and also the payment information. My card information was also captured on their website to make a next transaction on February 23, 2009. There is also a Cancel Services Link. Below is the actions I have taken in chronological sequence.

1) I clicked the Cancel Services Link. On the screen I got the message that to cancel services I should phone +919900199001 or send an email to in-cs-ysb@cc.yahoo-inc.com

2) I called +919900199001 and got an IVRS response to send email.

3) I sent email. No response for 2 days.

4) I went to the website management panel online and from the payment section I attempted to delete the card information using the delete link. I got a response that I should first enter another card number and details before this one can be deleted. If you observe, they are not accepting the cancellation of services and they are refusing to cancel my card information. If I do not want their services they are not entitled to my card information. How can they keep it so unsecurely on the internet? Now I got a response from them that they wish to call me but I was not available on the phone. They also said they have forwarded my email to the concerned department for renewal. My instruction to them was clear. PLEASE CANCEL and I warned them not to charge my card and delete the information they have on record.

5) I found some land line numbers of theirs in Mumbai on their website. I called. They asked me to call Bangalore. I called. They gave me another number in MG Road Bangalore. I called. They told me that I will have to send an email to in-cs-ysb@cc.yahoo-inc.com. After so much costs they have taken me round a full circle. I called Andhra Bank, they told me there is no way I can stop an electronic transaction and I would have to get the existing card blocked and reissued which would cost me Rs. 400/-. Eventually I would have to do this and hope to somehow recover the amount from Yahoo. I escalated my complaint to a higher up in Andhra Bank. He told me that to make my grounds stronger in case of dispute with Yahoo, I should send them an email instructing them to cancel the services and cancel the captured card information. I had already done this but the officer at Andhra Bank told me to add the following
'You are hereby required to confirm the cancellation of services and deletion of card information within 24 hours of this email. In case I do not receive any response within 48 hours from this email I shall assume that you have cancelled the services and accordingly my card will not be debited by you for any renewal.'

However, I chose to pay Rs.400 and get my card blocked and reissued. I am using this card since 25 years and have had very good services from Andhra Bank. I really wished for a good nights sleep rather than being cheated by a Juggernaut like Yahoo. Eventually my savings were reduced in changing providers. However, in future I would be saving something at least.

Another disastrous instance of automatic debit was for a product by Tata AIG General Insurance. I literally got conned by one of their tele marketing salesperson to sign up for a policy that sounded reasonably good. the cost was Rs.10/- per month for 2 months and thereafter Rs.701/- month. I had to part with my credit card information to facilitate debit of Rs.10/- month for the first 2 months. Thereafter if I did not cancel the policy within the free look in period of 60 days, my card account would be charged Rs.701 per month. Do bear in mind that all this was over telephone. On receipt of the policy I found to my detriment that it was one of the most disastrous insurance contracts I ever read (I too was a life insurance agent for 2 years). Immediately within 20 days (against 60 days) I sent back the policy with instructions to cancel the same and also sent a letter to Axis Bank, the card issuer, not to allow any debit to my card other than the Rs.10/- per month for 2 months. I sent them copy of my communication to Tata AIG General Insurance Company Ltd.

After 2 months I was surprised to observe that I was charged Rs.701/-. On telephoning Axis Bank, I was told that credit card transactions cannot be stopped and I would have to block the card and reissue it at a cost. I chose to cancel the card as it was a new account barely 5 months old. Eventually, after complaing to IRDA with the proof of communications to Tata AIG, the insurer cancelled the policy and refunded the amount charged to me within 2 days of receiving a letter from the IRDA. They sent the refund to my cancelled credit card and Axis Bank took another one month to refund the money to me.

What I found strange is that banks are happy to honor a telephonic instruction and charge your credit card account. Written instructions seem to have no value as far as credit cards are concerned, at least in India. Direct Savings Bank debits are a better option as you can put a stop to the debit more easily. Strange. Where good funds are available, payment can be stopped but where a credit limit is given a payment cannot be stopped and a bank seems only too happy to debit your credit card account and recover money from you. The reason they seem to be doing this is that there is more profit in the credit card transactions. As the merchant, whether honest or dishonest is bearing their charges, the banks tend to get more pro merchant than pro customer and look after the interest of the merchant. The card holder who pays the charge and in some cases also fees and interest (if revolving credit is used) seems to be at the receiving end in all these transactions.

It is a necessity to make card transactions. I strongly suggest the following:-

1. Avoid transactions where you have to give card details on phone.
   
2. DO NOT use credit cards online or at any merchant physically or through mail for a future transaction or automatic charges at regular frequency. There is absolutely NO WAY the card holder can stop these transactions. It can be cancelled only by the Merchant. If you deal with a dishonest merchant you will lose your money as you are bound to pay to the bank whatever is charged.
3. It is important you use credit card only for goods or services you are sure of receiving immediately and not in the distant future.

If you stick to these rules, you may be entitled to a good night's sleep.

ICICI Bank's Rs. 375 Cr. exposure to Lehman Brothers. Any problems for ICICI Bank or its account holders?

The news is out that ICICI bank has an exposure of EUR 57 Million (Rs. 375 Crores) in Lehman Brothers that has filed for Chapter 11 Bankruptcy with a US Court in New York. Fortunately due to somewhat rigid controls our regulators have on Indian Banks, most of our banks are not so adversely affected by the debacle of Lehman Brothers. The exposure of ICICI Bank is through its England subsidiary.

Is this a major disaster for the account holders of the country's second largest commercial bank?

Maybe not yet as the problem has so far been felt only in the share markets where the shares of ICICI bank has opened almost 6% lower. Remember the year 2003 when rumours of ICICI Bank going bankrupt rocked the country's second largest and fastest growing bank to such an extent that the regulator Reserve Bank of India had to step in and issue a statement that there is no problem with the Bank. Many people in Gujarat state where the rumours started had thronged at the branches of ICICI bank during midnight of the weekend to know about the status of their moneys lying with ICICI bank.

Many people (possibly the rumour mongers) had made huge profits in buying overnight the shares and bonds of ICICI bank at highly discounted prices. These situations are normally prominent in Gujarat State only.

The rumour mongers are at it again. People know that I do majority of my banking with ICICI Bank and they have been phoning me since afternoon telling me that I should withdraw all my moneys from ICICI Bank by tomorrow evening as it is going to fail. Relying a bit too heavily on ICICI Bank and being addicted to its services, of course I panicked. I decided to go and draw out some money from the ATM. No crowds at all that would remind me of the situation in 2003. In fact I was the only customer withdrawing cash from the ATM and all the 3 machines were operational. I could withdraw the cash. Next I walked into the branch. Not too much of a crowd at 4.30pm and it seemed to be business as usual. After my visit to the ATM I was able to use the card for shopping also. To my mind, these are not the idiosyncrasies of a failing bank. In this volatile stock market, rather than account holders, it is possible that the share holders who have a position with ICICI Bank will really have to be worried about it. Maybe the rumour mongers want to buy financial products of ICICI Bank and its Group Entities at a substantial discount to make immediate gains. These things happen only in Gujarat and we can rightly call this state the rumour house of India.

In the meantime, it is better to intensify our watch on ICICI Bank. I really do hope that our regulator the Reserve Bank of India puts in place a proper system wherein Banks do not feel the heat by such rumours. It is very badly needed here for sake of account holders and depositors.

High interest rates on credit card defaults in India. Matter with Supreme Court now.

Most of the hapless credit card users in India may have heaved a sigh of relief that the Supreme Court of India refused to stay a judgement of the National Consumers Forum of India stating that credit card issuers should charge an interest of less than 30% per annum on default of credit card dues. Appeal on this judgement by the National Consumers Forum was filed before the Supreme Court by card issuing banks, mainly the foreign banks and the large private sector Indian banks who have been charging interest rates of between 36%-49% per annum on default in payment of credit card dues. In addition to this they are also charging a late payment fee based on the minimum amount due.

The justification that banks have given to the Supreme Court of India for charging such a high rate of interest to credit card customers are having to make telephone calls and paying call centres to get new customers, telephone and Internet costs, high rate of defaults and frauds etc. It seems that the banks are trying to pass on the losses and costs in due course of their banking business to the hapless credit card customers.

While this judgement provides some temporary relief, please do not increase your credit card spends on revolving basis if you think the banks will charge you only 2.5% per month + service tax. This judgement is applicable only for defaulters who do not pay to the bank. Chances are that you are not a defaulter if you pay the minimum amount due by the due date and are charged interest on what you do not pay. If you are not a defaulter you will continue to be charged at the high rate of interest the card issuing companies have been hitherto charging to you. Defaulting is not an option to avail the lower rate temporarily allowed till the appeal reaches its logical conclusion. If you default, your name will be placed by your card issuer in the industry defaulters database maintained by the CIBIL for all bankers and you may not be able to avail bank loans or credit card facility from other banks till your name is removed from the defaulters' list. Therefore, please go easy and avoid going overboard with charging unnecessary purchases to your credit card.

Consider a situation that you make a purchase of Rs.5000/- and bank allows you to pay 10% by the due date and defer the rest. Today is the 10th September,2008 and bank issues your bill on 20th September. You will receive the bill that will have to be paid into the account (physical realisation of cheque into the account) by say 4th October. This means you should deposit your cheque on 30th September for it to be credited by 4th October. You must pay a minimum amount of Rs.500 by 4th October to avoid being charged late payment fee. If you pay the entire bill of Rs.5000 by this date, you are charged no fees or interest. If you pay only Rs. 500/- or less than the total amount due, you are first charged interest at 36% - 49% per annum + 12.36% service tax from the day you made the purchase on 10th September till the date you make the part payment. From the date your payment is received, you are charged on the balance amount at 36% - 49%. This way you are not reported as a defaulter to CIBIL. Consider the scenario that you do not make the payment or your payment is credited to your account after the due date. What happens then? You are a defaulter and you are charged 36%-49% per annum from the date of purchase till the date your payment is received beyond the due date or till next statement date if not received at all. If payment is received after due date, even if full amount is paid, you will be charged interest from date of purchase till date of payment as well as interest on the balance amount due till your next billing date. In addition to this you are also charged a late payment fee that varies from bank to bank. Most bank's charge 30% of the minimum amount due subject to a minimum of Rs.300 and maximum of Rs.600/-. In case of the illustration given above, 30% of Rs.500 works out to Rs.150. Therefore in this case they would charge you Rs.300/- being their minimum amount instead of Rs.150/- what it should work out to. Therefore the default would cost much more than 36% - 49% per annum depending on the amount. The higher the amount of default the late payment charges are less as there is a ceiling of Rs.600. Eventually you are encouraged to default for a large amount and not a small amount. What the honest credit card user is paying for is the charges a bank incurs in its marketing efforts to get dishonest wilfull defaulters + the amount the banks loses in principal amounts charged by these defaulters. Why do you have to pay? Because you are honest and wish to avoid getting into any default lists circulated by the bank to the CIBIL database. Banks earn interest and charges from you if you delay payment as well as earn charges from the merchant establishment that sells you the goods and merchandise / services. This is usually 2% + service tax. The merchant bears the communication costs for the swiping machine while completing the transaction. The card issuer settles the merchant 3 days after you charge the transaction and they earn their charges for committing funds for a very short term of 15-45 days depending on which day of your billing cycle you charged the amount. In case of debit cards, banks earn the same amount without any money at stake as customer account is immediately debited. It will take a lot to justify the high rate of interest between 36 - 49% per annum and I do hope that the fact that Banks are earning on credit / debit card transactions from the merchant establishments should be disclosed to the Supreme Court of India. Even 30% per annum is too high considering the service tax component added to it. We just have to hope that the Supreme Court will administer justice after fully analysing the facts and getting from the card issuers full statement of whatever they earn from the merchant establishments and not go by distorted figures given by banks. We should remember that for what customers charge their accounts for transactions with Petrol Pumps (Bunkers), Railways and Airlines a separate charge is recovered by the card issuers from the customers for these specific transactions. Card issuers also recover a charge for crediting refunds in case of cancelled railways or airline tickets. In these circumstances, we can only say that credit card business is a loan sharking business given a legal sanctity by the Government that chooses to remain silent because of the Service Tax they generate @ 12.36% of whatever the bank charges to the customer.

Insurance is a subject matter of solicitation! Really?

Life Insurance Policies and General Insurance Policies are being sold in India since more than a century under the British Raj. After independence, in the mid 1950s, the insurance business was nationalised in India and the Life Insurance Corporation of India took over the Life Insurance Business in India exclusively. The General Insurance Business was taken over by the General Insurance Corporation of India through its subsidiaries, the major ones being New India Assurance Co. Ltd., Oriental Fire and General Insurance Co. Ltd., National Insurance Corporation of India ltd. and United India Insurance Company Limited. These four nationalised insurance company issued mediclaim, accident, property, motor vehicle, marine and other general insurance businesses in India. Insurance for loss due to medical illnesses, accidents etc. was sold as additional riders in the Life Insurance Business. From 1956 to 1999, these nationalised insurance companies have had a free ride selling insurance policies without any competition. Post 1999, with private investments (including a 26% cap on foreign investments) being allowed to enter the insurance business, the face of the Indian Insurance business has changed tremendously. Before privatisation of the insurance business, we rarely read the fine print in the advertisements of insurance companies stating "Insurance is a subject matter of solicitation". The owners of the insurance companies (Government of India) never really needed to advertise insurance at all. You need insurance, you would walk into one of the divisional offices or branches of the insurance companies. Insurance agents were active but the selection criteria was based more on influence rather than qualifications. The only need for advertisements was if there was a drive to issue more of certain class of insurance products. The only purpose of advertisements was to sell massive number of policies. After all the moneys raised from premiums are invested into social infrastructure developments projects. That was the only need for advertisements. Post 1999, all this has changed. The Insurance Regulatory & Development Authority of India was constituted to regulate the general and life insurance business transacted in India, including the public sector insurance companies on a level playing field. With the public sector insurance companies having exclusivity in the trade for over four decades, the playing field could really not be called a level playing field especially for those in the Life Insurance business. In the General Insurance Business the private sector companies could prove themselves by settling claims promptly. The problems that private sector life insurance companies had was that if at all any claims were filed, they were all early claims that required thorough investigations before settlement because they themselves were newly in the insurance business and all their policies were new. Therefore, there were delays in settlement of claims. However, the general perception was that the private sector life insurance companies were unreliable for this reason alone. However, they were helpless as there is a statute in place that early death claims have to be thoroughly investigated before settlement. This was and is applicable even to the Life Insurance Corporation of India (LIC). However, the public totally ignored delays by the LIC for this same reason or rather were conveniently made to ignore this by the agents of LIC by showing solid proof of quick settlement of claims in the last 40 years when they had exclusivity of the business. With the number of private sector players increasing in the insurance sector, regulations were framed for appointing agents with proper qualifications and passing an exam held by the regulator. Regulations were also framed for advertisements that the companies could issue and the illustrations of policies issued by the companies. These have to be approved by the regulator IRDA. Taking cue from insurance business in other developed countries, our Indian insurance companies also had to write this line "Insurance is a subject matter of solicitation" on all forms of advertisements, including letter heads and visiting cards of employees or agents. This has become more of a statutory warning like what you find in advertisements or packages of alcoholic beverages or tobacco products (including Gutka). What exactly does this phrase or sentence mean. To decipher the meaning, first let us examine what solicitation means. To solicit in this context is to offer services against payment. This means that the insurance companies are selling to you their services (read policies) against payment of premium. The quote is clearly written as 'Insurance is the subject matter of solicitation'. This means that insurance policies can only be sold and not bought. In your right state of mind, you will not wake up one day and remember that you have to go and purchase an insurance policy, the reason being it is a contract that leaves you poorer in your pocket. It is something that you force yourself to procure because of your worries that you have in your mind. The most convenient way of getting rid of worries is to forget about it. That is what you may do and totally forget about taking insurance altogether and that can be damaging. Therefore insurance companies have to reach out to you through agents, employees or through advertisements. What should you understand by this phrase? I suggest you entertain the insurance agent with respect and hear him out for what he has to offer to you from his company. After all he is restricted to offer only his sponsoring companies product and he is in the best position to offer to you what you need as Insurance policies can only be sold, never bought. His card will also display this phrase 'Insurance is a subject matter of solicitation. Now let us come to the subject matter of this post. Why do I pose the question 'Really?' after this quote. That is because the insurance policies are never being sold. They are being 'wrongly sold', especially the life insurance policies. In Life Insurance, you definitely need the term insurance policies that are low cost with higher death benefit. That is what insurance really is and what you really need. For over four decades insurance was sold in India only as a tax saving tool giving you RETURNS. That is wrong. Insurance as it should be is risk protection. Any insurance that gives you returns is bound to be expensive as it is your money only that will be returned to you after being used, invested and eventually after insurance companies retain their pound of flesh to pay for the agents and their expenses. The returns you get is not comparable to other financial investments in the same situation although you will get a limited protection that is too costly. Eventually it is a contract that makes you poor while you are living so that you can die rich. Technically, such a contract is for those who can afford it and are rich. However agents will never sell to you the products that you need for what you can afford. First of all they themselves are more pressurised into selling to you what the company wants them to sell to you and not what you need. There is more profit in getting you to buy what you really do not need. You may pay your first and second premiums without much difficulty but as the policy continues, you are stuck and it is your lookout how to arrange the premiums to keep the policy in force and not loose everything. This is definitely not the lookout of the insurance company or the agent. The agent also has the attraction of selling you policies that give him higher first year commissions so he has the chance of attending a Million Dollar Round Table Conference in some fancy exotic locale, fully sponsored by his principal. For the principal to pay his commission as well as costs, they have to earn a really high amount from you and therefore the policy can never be a win-win situation for you. The insurance has been aggressively solicited to you. Therefore I have put forward the question 'Really?'. It has not been solicited with the intention of your necessity. Therefore please do take care to first take an economical policy that offers 100% protection and no returns. Avail of money back policies only when you can really afford it. In this respect I find LIC has products to suit all budgets. Our finance minister has rightly referred to them as 'The Jewel in the crown' in his last budget. It is now only left to the agent to solicit the right products you need. As far as the private sector insurance companies are concerned, they do have a floor limit on the annual premiums they receive to consider issuing you a policy. Their agents will not be interested if you are of the class of sub 10K annual premiums and they will try to aggressively sell to you what you do not need and cannot afford and over and above make you feel bad if you are not availing the policy they want to sell you. I have been an insurance agent for 3 years with a private sector company. While I found that for namesake they had products that could suit people, they constantly coaxed agents to sell products that they wanted sold. I am not against any of these companies. Insurance is something that you need and worldwide the insurance agency business is difficult as it is very difficult to sell a piece of paper against money. What I am totally against is the misrepresentation done by fellow agents who succeeded using doubtful means of inducement and I failed because I wanted to proceed by the book in a manner beneficial for the client. Therefore I left this business. However, I have no regret having done this business. I had to pass an exam to qualify and I learnt a lot from it. In case you feel you need my guidance anytime, my IM ID is in my profile. Anytime. You can leave your comments.

I have had to liberally use the words 'no' and 'not' in this post even though I am against the use of these highly negative words. The insurance business is such that it breeds on negative impulses. Therefore usage of these words are really unavoidable.

Inoperative / Dormant Bank Accounts in India

Problems regarding banks having inoperative accounts has been recognised since a long time back and instructions have been given to banks as far back as 1977 that any deposit (read non-borrowing) that are totally inoperative (without any customer induced debit / credit) for over two years should be maintained in a separate ledger of inoperative or dormant accounts. In the interim, circulars were also issued informing banks that in absence of customer induced operation for more than a year, Banks should proactively follow up on the whereabouts of the customer or legal heirs in case the customer is dead and ascertain from them reasons for no transactions in the account. Crediting of a savings bank deposit interest is not a customer induced operation and debiting folio charges to current accounts or account maintenance charges is not a customer induced operation.
The Reserve Bank of India has issued a circular as recently as August 22, 2008 to all commercial banks regarding inoperative accounts. This circular is available in the Reserve Bank of India website and for your convenience I have linked it here for easy reference.

For the bank account to be considered as operative any of the following transactions should be considered. These are transactions at the instance of the account holder:-

1. Issue of cheque against available balance in the account.
2. Deposit of cheques / demand drafts into the account for clearing.
3. Deposit or withdrawal of cash from the account.
4. Issue of demand drafts by debit to the account.
5. Credits by ECS into the account. Account holder may receive credits from sources like dividend from shares, interest from bonds, deposits, debentures or other securities that may be credited directly to his account by the payer.
6. Credit of interest from any other deposits in force with the same bank or branch. In case customer has an active fixed deposit account with the bank from which interest is regularly credited to a savings bank account by customers' standing instruction, in the view of this author, this should be regarded as a customer induced credit. Payment of savings bank interest into the savings bank account would normally not be a customer induced credit.
7. Debits against standing instructions. In case standing instruction is given to debit amounts from the deposit account and pay to third parties by ECS mandate or to transfer to another account in the same bank (an example is a recurring deposit account in your name or family members' name or say even locker rentals), in the opinion of this author these too should be construed as customer induced debit. However, in case of lockers, your account would be debited once a year to pay the rental. It is mandatory for a locker holder to operate the safe deposit locker at least once in a year. After your last visit to the bank to operate the locker, you should again visit the bank within a year. If your locker operation is normal as above and your account is debited for payment of locker rental, then in the opinion of this author, this should be construed as a customer induced debit. It is better you operate your locker once a year between the renewal dates.

Even if the transactions are routed via net banking or by using ATM cards, they would be treated as customer induced transactions.

The important points in this notification issued by the Reserve Bank of India is that to avoid any frauds Bank has to proactively follow up the whereabouts of the customer. Inoperative or dormant accounts are susceptible to frauds by people who open accounts to use it for nefarious activities at a later date. However, there could also be genuine reasons why account remains inoperative. A person could have temporarily relocated due to change in job or gone abroad for a new job. This notification puts the onus of tracing the account holder on the bank and also conveying to the account holder to route transactions through the account. The most important point that benefits the customer is the payment of interest. In case a term deposit account matures and is unclaimed it would still continue to earn interest at savings bank rate. Bank will have to continue paying interest to a savings bank account even if placed in the inoperative ledger. Till now, banks were gladly avoiding paying the interest on such occasions and enjoying the money from these accounts free of charge. If the account is made operative again, 'nil' charges are levied for doing so. However, bank will have to follow the KYC norms as they would for opening a new account and ask you for your address proof and what work you do. Many banks had been classifying accounts with no operation for as low as six months as inoperative and not paying interest and in fact debiting charges for maintenance and reactivation. It is clear now that the banks cannot do this anymore until Reserve bank revises its norm allowing them to do so.

As pointed out earlier, there could be genuine reasons you may not be able to operate your account. You may be relocated temporarily for say one or two years in a new job or transferred at your current employment. You may take up an assignment abroad. In the latter case, it is mandatory for you to inform your bank and classify your account as Non Resident Ordinary (NRO) Account. If you are going out for a period of more than 6 months and do intend to come back in say 1 - 2 years, the simplest way to keep your account active is open a recurring deposit account for 3 years and leave sufficient balance for 3 years monthly installments. Give a standing instruction to debit your account the installments and also give an instruction to credit your account back at maturity. If you have to stay out longer, inform your whereabouts to the bank and again renew your recurring deposit with the same standing instructions. If you are abroad, maybe a foreign exchange remittance to your account will keep it active. This is not the only way. If you subscribe to Internet banking, you can credit your account by deposit of cheque at your temporary location and use the funds to pay your utility bills, credit card bills etc. You may have to pay a small price for this service, but it is worth the convenience. After all a regularly operating deposit account with sufficient credits and debits is important if you want to avail of loans etc. at a later date.

Please leave your comments to this post. In case you have any difficulty that may be specific to your case, maybe a discussion should help you sort out your difficulties.

'Know Your Customer' norms followed by Banks in India

Opening a new bank account is a hassle these days especially for the retail customers. The customer is required to provide identity documents and address proofs etc. before the bank is able to open the account. For those who are rooted to a particular address, this is a one time formality. For people who go on changing their address or are in transferable jobs, this can really be cumbersome as the choice of address proof becomes very limited especially if you stay in rented homes. Please avoid getting annoyed at the banker for asking you to provide these details. The banks have to meticulously follow the procedures as they are answerable in case there is any problem in future regarding the accounts they open. There are a lot of financial frauds taking place these days that hurt the economy of the country. Perpetrators of terrorism and crime against society always try to use official channels to move tainted money. The Banks obviously are the first choice medium to move proceeds of crime, terror funds and also to propagate financial frauds. Therefore it is very important for the Banks to be well acquainted with their customers and collect proper proof of identification as well as address, usually residential address of an individual or office address for businesses along with the residential address of the owner(s) of the businesses.

Although I have frequently mentioned banks as the service provider to follow these norms, please note that these norms also have to be followed by other service providers (credit cards, insurance, mutual funds, investment agencies and brokers). Everywhere there is movement and parking of money involved, it is important for the service providers to follow the Know Your Customer (KYC) norms.

Usually, you have to provide the Bank with 2 RECENT color photographs along with a document that acts as a photo ID. Valid passport, Election Commission ID Card, Motor Vehicle Driving Licence (MDL), Income Tax PAN Card etc., are the most acceptable forms of identification that any bank will accept.

For your address proof, the Passport or the Election Commission ID Card or MDL is also good enough as long as it is valid. You can also provide the Bank with Electricity Bill, Gas Bill, Land Line Telephone Bill in your name, your employer's letter confirming your address if you are employed by a PSU or a reputed Limited Company, Leave and License Agreement (duly registered or stamped as per laws of the state), ration card, account statement of your existing bank showing your address. Normally, these documents should be recent (less than three months old) so that it can be assumed that they are still in effect in your name. Some banks may also ask you for a payee's account cheque issued from your existing bank that will be cleared before opening the account. This helps them in determining the authenticity of the signatures. To make themselves a little safe, some banks (especially the nationalised banks) insist on an introduction by an existing account holder of the same branch or another local branch of the same bank, having an ACTIVE account in operation since more than 6 months. They refuse to accept introduction from dormant or inoperative account holders. Most of the banks send chequebooks and ATM/debit cards to the address you provide them. This helps in satisfying them regarding authenticity of your address. A recent Income Tax scrutiny order is also an acceptable proof of address.

It is a requirement for Banks to collect your PAN Number to open an account in your name. However, if your income is below taxable limits without applying any deductions, applying for a PAN card is optional for you and you can alternatively file the declaration in form no. 60/61 available with the bank. However, you will have to give alternate identifying documents listed above. If it ever becomes mandatory for you to obtain an income tax PAN number, please provide the same to your bank to update your profile. During normal course you may place fixed deposits with the bank that will earn interest. If you are required to obtain a PAN number due to reasons of crossing the threshold limit of income, you are no longer eligible to furnish Form 15 G or 15 H for non deduction of Income Tax at Source. Banks have to deduct income tax at source from your interest if it exceeds a certain limit specified by the department from time to time. It is mandatory for Banks to furnish your PAN number while filing their returns with the department and they get into a very tight spot if they are unable to file their returns for want of your PAN number. It affects the tax credit to their other customers as department does not effect credits until the deductor has filed their return. They have a threshold to comply with. Furnishing your PAN number will ensure that even your taxes deducted are credited at the income tax department. Also note that furnishing a wrong PAN number (that includes indicating you do not have a PAN number even if you do have one) is punishable with a fine under the Income Tax Act.

For certain class of financial providers like mutual funds or stock brokers or share depositories, PAN Card issued by the Income Tax Department is mandatory irrespective of your income. In addition to this, you may be required to provide other identifying numbers depending on the quantum of your investments.

Please answer the questions the bankers ask you even if they may be of a personal nature regarding who live with you, the work you do or regarding your employers and what work you do for them. They need to ascertain for future what quantum of transactions you will be doing through your account. The banker has to follow the provisions of the Anti Money Laundering Act and for this act the onus is entirely on the bank to report certain transactions as suspicious transactions to the Reserve Bank of India and knowing what you do by asking a few questions that you may deem as invasive can possibly facilitate smooth running of your account in future as they would like to avoid inconvenience to you by unnecessarily reporting what could be your genuine transactions as suspicious. I will be discussing the features of Anti Money Laundering Act to be followed by various financial service providers in future posts.

Please be truthful in answering the questions asked. Avoid creating impression while answering these questions. If you try to build an exaggerated impression, you may get cornered with a request to place moneys in certain investment products and declining this request is an uncomfortable start to your relationship with the bank.

Business accounts may be required to furnish their Sales Tax Registration / Income Tax Returns /Service Tax Registration etc. while opening the account. Accounts will be opened even without immediate availability of these documents, but for your convenience, please provide your bank with these documents in due course as soon as you obtain any or all of them. This helps the Bank in complying with provisions of the Anti Money Laundering Act. If you are registered with sales tax, obviously you would be having a turnover of transactions to match. Paying your sales tax through your bank indicates that transactions you have done in your account are genuine when corelated with your tax payment.

Now that you have opened your account, please enjoy the services the bank offers you. Remember that you must have regular customer induced credits or debits (net banking / atm channels are also acceptable modes to induce credits / debits to your account ) to continue classifying your account as active. Inoperative or dormant accounts need to provide identity proof and address proof again to allow debits. A visit once in a way to the bank for some service (depositing a cheque, collecting a demand draft) at least helps if you have to sign for the service. The banker is assured of your existence. In case you regularly fund a savings bank account, please also make a withdrawal occasionally. Withdrawal by means of signing proves that you are indeed alive and this is what the banker has to verify given the fact that they have to pay interest to live persons.

If you establish a borrowing relationship with your banker they will regularly verify your details and standing and they are entitled to receive from you your current documents and even financial statements as long as a lender - debtor relationship exists. Financial service providers also use courier services rather than regular mail to send you correspondence. Every year they will definitely send you a couple of mailers through local couriers as they get an acknowledgement of delivery of mail to the address for their records. The only problem arises if both husband and wife are working and children go to school. Chances are that the courier delivery agents will always be at your doorsteps when no one is at home. It is very likely you would have provided your home address for individual accounts. Therefore you must ask banks to note down what time you are usually available to accept courier deliveries. This way you can be saved of any inconvenience as you are likely to receive cheque books, statements (even though you may opt for email statements) and even income tax deduction at source certificates by courier if you place any term deposits.

There will be many more posts I will make in this blog regarding banking, insurance and other financial services. Please do subscribe to the feeds by clicking the appropriate links.