Government and RBI should revisit all bank charges on deposits

Recently the author received a message from AXIS Bank that henceforth the bank would be charging Rs 15 a month for SMS messages. Quite predictably the savings bank account was debited for the same. There was no choice provided to the customer and the bank went ahead without the consent. As is normally the case with all bank charges it is possible that your bank might have had this in fine print in the account opening form which would have been exempted from a fee to begin with. Hence there was nothing amiss about such a charge being imposed after a decade. Should the RBI be worried about such developments?

In the Indian banking system, there are around 165 crore savings bank accounts in the country and if this charge of Rs 180 per month were to be applied to all, the system would be earning up to Rs 30,000 crore. If even 25% of these accounts are charged, the income would be Rs 7500 crore. Practically speaking, savings bank holders are normally salaried class which does not need such messages which are ‘pushed’ on them and then charged. The same bank earlier started charging Rs 300 per annum for debit cards issued which is mandatory for every customer. All those in the exempted category, like salary accounts, were also charged this fee. This is a personal experience with the bank. This practice has become universal now as a check across these banks show that all are charging customers for basic services. And the curious part is that the RBI has actually given freedom to banks on these accounts and the interest earned could be as low as 2.5% now for some banks.

The Financial Resolution and Deposit Insurance Bill, 2017 had also proposed deposit holders to partly bail out banks, meaning thereby that if NPAs increased and banks went bust, the deposit holders should bear part of the cost. The RBI has also approved all the charges which banks charge to customers—number of ATM withdrawals, cash deposits, entry into banks, and so on. Therefore, banks are merely working within the rules laid down by the regulator.

The broader questions are the following. First, deposits keep banking business going and hence the savers cannot be charged for basic banking services. Banks keep messing up on what they are supposed to do i.e. lending, and try and make up these losses by burdening the customer with these charges. As banks operate as an oligopoly, everyone does the same and hence deposit holders have no choice. Second, when a charge is imposed the deposit holder’s consent has to be mandatory and an ‘opt in’ facility has to be there. If a person does not want a debit card the choice should be given with the provision that the person has to go to the bank branch and make a transaction. While the charge may not be high, but with 165 crore accounts involved, the potential cost to the savers will be around Rs 50,000 crore. When the smart card concept came in, the idea was that customers did not crowd the branch and were given this facility. Once used to it, banks have started charging for the card. Often on security grounds there is a time stamp which means that new cards are issued and the customer can be made to pay for this issuance too. Third, the very idea of FRDI of making deposit holders also taking the burden of NPAs is abhorrent. Banks make money on the deposit holders’ money and hence the latter cannot be made responsible for something which the former is supposed to have the expertise.

There is definitely need for the RBI to revisit all these charges that are levied by banks and question the logic of each one of them. Basic bank services have to be free of cost and where there are charges the customer should be given the choice. In fact, even minimum balance rule, which is a good way for banks to earn money makes no sense as there are actually no costs in having an account which does not have this threshold. Banks continue to use these funds for their business and earn an income and hence the argument that this is a cost for the bank is fallacious.

There is also need for an association to be formed for deposit holders which works towards protecting their interests. Curiously all policies are biased heavily towards the borrowers and rarely talk of the interests of deposit holders. Hence the savers’ perspective is never looked at. As there is a large population that lives on a fixed income the anomaly is that while the government talks of the interests of this class, the same does not get reflected in policies.

The government also should look into this issue as on one hand it is trying to drive people away from cash holdings and forcing savers to put money in a bank where these practices can be interpreted as being exploitative.

The writer is chief economist, CARE Ratings. Views are personal.

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