'DNA' investigation: Hundreds suffer as ICICI bungles

ICICI Bank flouted all rules, and closed more than 2,00,000 accounts and suspended almost 50,000 accounts across branches in the city because records were lost in the 2005 deluge. And the bank did not have any back-up of the records.

What did regulators do? Nothing. The Securities & Exchange Board of India did not take any action.

The SEBI (Depositories and Participants) Act, 1996, says banks have to ensure that records are not lost, destroyed, or tampered with. Banks have to maintain multiple back-ups of records at various places. Even the Prevention of Money Laundering Act, 2002, says banks have to keep multiple hard and soft copies in a manner as may be specified by the Reserve Bank of India. But ICICI did no such thing. Apart from closing and suspending accounts, the bank lost three-in-one online trading account opening forms of 440,000 customers and account opening forms of 55,000 NRIs, according to information obtained under the Right to Information Act (RTI).

Also, mortgage documents of tens of thousands of customers were lost. Of these, the few account opening forms (AOF) that are still available are completely damaged.

While the online trading AOFs and mortgage documents were stored by a third party, Crown Worldwide, in Navi Mumbai, the AOFs of NRIs were stored by Recall Management Services India, also a third party, in Bhiwandi. As a safety measure, most banks usually maintain three sets of hard copies of AOFs. Clearly, ICICI did not take any such measure.

The bank did try to control the damage though: It tried to dry hundreds of forms and even got customers to fill up a new set of AOFs. But this exercise fizzled out soon and the bank chose the easy way out — it either closed or suspended accounts of those who did not submit the forms. And two years after the deluge in Mumbai, ICICI informed RBI that it had closed 2,00,000 accounts and suspended 50,000. Of the NRI accounts, 10,000 were closed and a few thousand were suspended.
Active accounts with zero or negative balance were closed while active or dormant accounts with balance were suspended.

But such a step is in contravention of Section 2(1) (g) of the Consumer Protection Act, 1986, for deficiency in service to its customers by losing records, threatening customers to suspend active accounts and finally suspending the active accounts.

What about SEBI and RBI? Did they advise ICICI to suspend/close accounts if customers did not submit fresh AOFs?

No. Two separate replies under the RTI showed the regulators never issued any advisory. In fact, ICICI informed RBI about the losses for the first time on September 12, 2006. In effect, this means the bank operated the accounts for almost a year without necessary documents. In spite of all these, RBI did not take any action.

ICICI did not even inform SEBI, which forced the body to take a suo-motu notice of it. A RTI reply says “ICICI has not informed SEBI regarding loss of records in the deluge of July 26, 2005. However SEBI has written to ICICI to confirm that the bank has reported the loss to the National Securities Depository Ltd (NSDL)”.

ICICI mooted the idea of closing/suspending accounts and the NSDL gave its approval in September 2007 while setting October 15, 2007, as the deadline for customers to submit fresh AOFs.

While the bank went ahead and closed/suspended accounts and regulators like RBI did not take any action, it was the consumer who was at the receiving end.

Online consumer sites are flooded with complaints. “I am an NRI... Recently, I came to know that my NRI account has been debit frozen,” Arun Kumar said. “When I called up ICICI Bank, I was told that they have lost my account opening documents in the 2005 Mumbai floods. Since they don't have my documents, they have debit frozen (cannot withdraw money) the account.” But while the bank has ensured that Kumar cannot withdraw any money, it happily accepts overseas remittance. “The bank never informed me... It froze my account without proper notification. I want to know why a consumer should suffer for the bank’s negligence.”

Kumar is not alone. Several customers DNA spoke to say the same thing. “Why should I re-submit documents? It is the bank’s responsibility to maintain records,” SS Vora, whose three-in-one account was suspended, said. “If they failed, they should be punished and not the customers.”  

“What the bank has done is nothing less than threatening us,” another customer said. “If we don’t submit fresh AOFs, our accounts will be suspended.”

For the lost mortgage documents, the bank tried to create duplicates of original property documents of at least 216 customers. Never mind that duplicate documents are of little use when it comes to property transactions.

“If you do not have the original title deed of your property, you will find it extremely difficult to sell your house,” a real estate agent said. “You will hardly find any buyers... Absence of original papers will make the buyer suspicious that something is not right.”