How banks are picking our pockets with unreasonable charges to cover up for their inefficiencies in business lending
It required a sharp prod by the governor Reserve Bank of India (RBI), Dr Raghuram Rajan, for Indian banks to cut their base lending rates by a token 15 to 25 basis points on 8th April. But things are rather grim at public sector banks (PSBs) and it remains to be seen how many borrowers will really get a lower rate. The government will have to pump in a massive Rs2.4 lakh crore of taxpayers’ money into recapitalising PSBs to ensure that they meet the Basel-III norms by 2018.
Of this, provision for only Rs7,900 crore has been made in the Union Budget and the finance minister has said that PSBs may also be allowed to divest government holding down to 52%. Can this happen when some of the biggest PSBs have remained headless for nearly a year after the BJP-led government took charge? The government is crowing about the success of the Rural Electrification Corporation issue on 8th April, but will sensible retail investors put money into badly managed PSBs groaning under the burden of bad loans? At best, there could be a pseudo-divestment where a government insurer is forced to acquire poor quality PSB equity, creating another problem for the future.
There is silent anger and great demoralisation among senior bankers over recent changes in the eligibility criteria and flexi-pay packages that are being offered to direct recruits the government is planning to induct at the top. The need for such hiring, too, has come about because of a government-created crisis with a ban on recruitment imposed in 1987. A whole swathe of senior bankers (chief general managers and executive directors) is set to retire shortly. However, thanks to the change in eligibility criteria, which requires three years of board-level experience, bankers with over three decades of PSB experience, are likely to be disqualified from the top jobs of executive directors and managing directors.
Another point of anger is the vast disparity in salaries at the top level, between PSBs and private banks. While all PSB heads have been badly tarnished by the arrest of the Syndicate Bank chairman, senior bankers openly say that if the government wants to end corruption, it will have to do something about salaries. One banker had a lot of admiration for State Bank of India’s (SBI’s) chairman Arundhati Bhattacharya, who reportedly raised the compensation issue quite bluntly at Narendra Modi’s Gyan Sangam. It is hard to believe that there will be a significant push to reduce bad loans if this level of discontent among bankers, and apathy in the finance ministry, continues.
Does this affect ordinary consumers? Yes; in multiple ways. First, most of us, as taxpayers, bear the brunt of repeated recapitalisation of banks by the exchequer. Secondly, banks have discovered that it is extremely easy to pick the pockets of depositors and make them pay for a variety of basic services, because they are too disorganised to pose a challenge.
Consider this. Even after the recent reduction, the base lending rate remains above 9.9%, while savings bank interest in most banks (barring two) is 4%. This spread of 5% is probably the highest in the world. Yet, the cartel of banks, led by the Indian Banks Association (IBA) will have us believe that they have no option but to charge consumers for a variety of services that will be more than amply covered by this huge spread that banks earn on our savings accounts. We have now become accustomed to paying for mobile alerts which were originally introduced as a free security measure. The two challenges to the decision to charge for ATM transactions beyond a base level are languishing in the Delhi and Madurai high courts.
Meanwhile, banks are eliminating the convenience of their massive investment in core banking solutions (which promised anytime, anywhere banking) by dreaming up new charges. A senior citizen says he was levied an ‘intercity charge’ of Rs50 for depositing cash in his own bank account in Bengaluru (not his home branch). A Moneylife reader was charged a fee to deposit cash in his own account. Reversing these charges requires a sustained battle, so most depositors simply give up.
If this is part of RBI’s avowed policy to discourage cash transactions, surely it must explain why it is silent about ‘convenience charges’ claimed from consumers on online purchase of movie tickets, airline tickets, etc? Questions from consumer organisations also fall on deaf ears. Our surmise is that the government and RBI are fully aware that customers are being fleeced; but, since they consider the 350 million Indians who own a bank account as part of a ‘creamy layer’ (a central bankers’ term) of society, their complaints are irrelevant when faulty government policies have landed bankers in a far bigger mess.