Βank fees: Time for an RBI intervention?
By Sunitha Natti |
File Photo of RBI. | Reuters
Consumers are stung by exorbitant charges now levied by high street banks. From reductions in the number of free cash transactions at bank branches, to increasing charges on cash withdrawals and deposits, to penalizing customers for non-maintenance of average minimum balance, it appears that public and private sector banks have developed an appetite for ripping out costs overnight.
In reality, some of these charges existed in the past, and were simply re-introduced, but the move rankled customers, who believe they are skinned by banks in return for their services. Cash is still a mainstream medium for transactions and that’s why the fresh levies seem arbitrary and unacceptable.
Optimists say the move is in line with the Narendra Modi government’s emphasis on promoting digital economy and disincentivising use of cash. Banks claim the increase in fee is a reflection of their ballooning expenses. The truth is somewhere in between.
It costs money to set up ATM infrastructure, and for maintaining an account. Banks also pay vendors like Visa and Mastercard, everytime consumers swipe debit or credit cards. Until now, these costs weren’t passed on to customers as banks recovered them from merchants — like say a Big Bazaar outlet — whenever plastic money was at play.
But the government’s Unified Payment Interface (UPI), the online payments gateway, took the momentum out of plastic, threatening to reduce or/and eliminate the usage of cards. As more users opt for online payments, income to banks from merchants plunges, forcing banks to look for alternate revenue generating avenues. This partly explains the reason for an increase in charges.
For much of the past few years, banks did pretty much the same thing. Every quarter, they would add a few more branches and grow their customer base.
They rarely deviated from this formula, and that worked just fine. Until it didn’t. Demonetisation brought in drastic changes in the way people deal with cash. A December 2016 finance ministry report on digital payments made the case for limits on cash transactions and suggested a nominal charge for transactions beyond a limit. Going forward, digital transactions will likely soar and banking at physical branches or ATMs could turn expensive as charges and fees will likely stay.
The RBI has been proactive in improving customer service, but has been maintaining a stoic silence in the crucial area of fees and charges — a segment that continues to be de-regulated. But it may not be too late to lay down rules or to set a cap on charges to prevent any customer-unfriendly practices in future.
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