Banking
Make ‘basic’ banking services free! –Part-I

In the first part of this two-part series we identify certain basic services rendered by every bank, and ensure that these services are offered free of all charges across the board, so that every customer is treated fairly, equitably and in a non-discriminate manner

 
The Reserve Bank of India (RBI) in its master circular on customer service in banks issued on 1 July 2011 has highlighted the need to empower the depositors in the following words: 
“Depositors' interest forms the focal point of the regulatory framework for banking in India. There is a widespread feeling that the customer does not get satisfactory service even after demanding it and there has been a total disenfranchisement of the depositor. There is therefore, a need to reverse this trend and start a process of empowering the depositor.”
 
Further, RBI in its annual monetary policy for 2013-14 announced earlier this month has, inter-alia, stated that they would issue detailed guidelines by the end of June 2013 with regard to uniformity in Intersol charges levied by banks. 
 
Intersol charges are those levied by banks for using the service of branches other than the home branch, where you opened your account. With the introduction of core banking solution (CBS), many banks have been proclaiming that when you open a savings account with a branch, you become the customer of the whole bank and not of any one single branch. This means that with the use of technology, the benefit of service at all the branches of the bank should be available to you, though technically, your account is maintained in one particular branch, where you opened the account. This is what they call as “anywhere banking”.
 
Here is what the RBI had said in its monetary policy statement earlier this month with regard to intersol charges:  
“With the introduction of Core Banking Solution (CBS), it is expected that customers of banks would be treated uniformly at any sales or service delivery point. It is observed, however, that some banks are discriminating against their own customers on the basis of one branch being designated as the “home branch” where charges are not levied for products services and other branches being referred to as “non-home” branches where charges are levied for the same products/services. This practice is contrary to the spirit of the Reserve Bank’s guidelines on reasonableness of bank charges. With a view to ensuring that bank customers are treated fairly and reasonably without any discrimination and in a transparent manner at all branches of banks/service delivery locations, banks are advised to: follow a uniform, fair and transparent pricing policy and not discriminate between their customers at home branch and non-home branches.”
 
However, banks in their anxiety to increase their fee-based income have been overtly and covertly flouting the guidelines of RBI and are levying charges indiscriminately for several services, which are neither fair nor equitable. For example, you can get your pass book updated at your home branch without any charges, but if you get the same pass book of the same account updated in another branch of the same bank, which is now possible under the CBS, many banks levy a charge for rendering such a service. This is being frowned upon by the RBI as it is discriminatory and against the spirit of RBI guidelines on reasonableness of bank charges. 
 
As a step towards removing this discrimination, it is necessary for the RBI to identify certain basic services rendered by every bank, and ensure that these services are offered free of all charges across the board, so that every customer of a bank is treated fairly, equitably and in a non-discriminate manner. 
 
The basic banking services can be divided into three parts:
1. Mandatory services: There are a number of services, which compulsorily go with the maintenance of savings bank and current accounts and in all fairness. These services should be made available to all banks’ customers without any charges. While opening an account is currently free, banks do charge a fee for closing the account within a certain period. A customer should have freedom to open and close the account whenever he wants, as it is the basic right of an individual to close an account if and when he finds that the services offered by the bank are not up to his expectations. In fact while opening the accounts, banks stipulate certain conditions for customers to follow, but conveniently omit to state their own obligations towards the customer. 
 
All services extended through the use of core banking technology (CBS) must be mandatorily offered free to every customer, as it does not add to the cost of operations of the bank. It is obvious that rendering a service at any of their branches (non-home branches) is equivalent to offering the same service at the home branch. Whether depositing or en-cashing a cheque, writing a pass-book or issuing a statement of account, transferring funds from one account to another in the same bank but in different places and whether collecting a cheque from another bank or paying a cheque in another place are part of the core banking activity and should be compulsorily available to all bank customers in all their branches free of all charges. The purpose of CBS is defeated if the benefits of such modern technology are not made available to the depositors free of cost at all branches of the bank. 
 
There are many other services like issuing an ATM-cum debit card, accepting  standing instructions for payment of utility bills through ECS, etc are all basic banking services, which should be available to all bank customers without any charges. Banks today charge fancy rates for all these services, without any regard for the convenience of the customers and without any relation to the cost involved in offering these services. 
There is, therefore, a need to codify all the basic banking services that deserve to be made available free of cost by all banks and RBI should not only come out with list of such basic services but also instruct banks to offer these services without any charges in the interest of transparency and fair treatment of bank customers.
 
2. Services that relate to security and safety of bank accounts: All the banks have a sacred duty to safeguard the interest of all customers by ensuring safety of their money and security of their accounts by virtue of having undertaken to accept their deposits and hold it in trust for them. It goes without saying that banks are obliged to keep the customers informed of all that affects their interest and this service should be offered without any charges to every customer of the bank. 
 
There are a number of services which go to preserve and protect the interest of depositors. For example, communicating a customer when a certain amount is withdrawn from his account is a security measure that helps banks to prevent frauds. As this service is beneficial to both, the bank and the customer, it is certainly unreasonable to levy a charge on such a service offered to the customer. 
                  
Recently it was pointed out by a Moneylife reader that one leading private sector bank has put up on their website a notice that from 1 May 2013, they would levy a charge of Rs15 per quarter for the SMS alert facility offered by the bank. Is this fair to the account holders when the intention of the bank to send such a message is to prevent frauds in their backyard? The RBI should identify all those services, which are in the nature of securing the safety and security of customers’ accounts and ensure provision of such services free of cost to the customers of all banks.
 
3. Services to senior citizens and or disabled persons: Senior citizens and disabled people need a wide variety of services from banks to enable them to lead a life of dignity. They deserve special treatment at the hands of all banks purely from the humanitarian angle. There is a need to identify all those specialized services that are required to be provided by banks to such deserving people without any charges to make their life a little more bearable and livable in these days of rising cost of living due to the stubborn inflation plaguing the country. 
 
For example, banks levy a penalty for withdrawing a deposit before maturity. Banks levy a charge for not maintaining a minimum balance in the account every month. Banks do levy a charge for issuing a duplicate pass book when the original is lost. These and a host of other types of charges can certainly be waived for senior citizens and or disabled account holders as a token of service to these people, who deserve help and assistance due to their old age and or disabilities.  
 
Need to empower the bank depositors: Unfortunately, the objective of the RBI to empower the bank depositors has remained only in paper, as nothing much has been done to empower them during the last two years and the level of customer service in both public and private sector banks has deteriorated further. This is one of the reasons why the rate of growth of bank deposits has been falling year after year and the savings rate in the country has fallen considerably over the years as people prefer to invest their surplus funds on gold or immovable property, instead of keeping with unhelpful banks.  
 
The RBI should, therefore, now take up the cause of depositors in right earnest not only in the interest of improving the savings rate in the country, but also with a view to restore the trust of the public and get their patronage before grating new banking licenses, as banks have lost the confidence of the general public due to their callous attitude towards the customers and the recent exposures of unhealthy practices in the functioning of commercial banks in our country.
 
(The second part of this two-part series on “Empowering bank depositors” which suggests compensating bank depositors if they fail to get the service they have the right to expect, will appear tomorrow.)
     
(The author is a banking analyst and writes for Moneylife under the pen-name of Gurpur.) 

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COMMENTS

D A Bhatt

4 years ago

As far as information available to me, the expenditure incurred for technology purchase, indigenization and implementation for improving banking services to customers is not directly born by individual banks and it has helped them in coming out of old traditional costly, bulging and bogging record keeping system. There fore it is now need of the time to well identify basic banking services and it should be made totally free to all customers.

Suresh C Ashawa

4 years ago

Very well written article for the benefit of Bank customers. The punjab National Bank does not encash third party cheques at other than Home branch. This is also discriminatory practice.
Suresh Ashawa
[email protected]

hasmukh

4 years ago

Nice Article. Please keep it up. The Banks are taking their customers for a ride in their enthusiasm to boost their income,and this practice can be termed as "looting" only. RBI must come down heavily on them.
Also, Banks charging for Debit cards (after 1st year) is also not fair : No credit whatsoever is extended by Banks for Debit cards as the Account is debited immediately.
Thanks again for the Article.

arun adalja

4 years ago

some banks are charging for atm cards in second year.this should made free as it reduces 30 to 40% work load of bank.they must seperate atm and debit card and if somebody wants only atm card then it should be given.icici bank wants to charge for sms alert facility which is ridiculus as it can avoid fraud.rbi must force banks to follow the rules strictly.

pawan

4 years ago

good article. hope RBI takes measures on these issues

choksi R

4 years ago

Excellent article, a very valid point and issue.

I have accounts with Axis Bank and they charge me hundreds of rupees whenever cash is deposited/withdrawn at other than 'home branch'. You have very well highlighted the point that under 'CBS' there should not be any difference between a 'home branch' and 'other branch'. I hope RBI makes all the banks follow this.

REPLY

arun adalja

In Reply to choksi R 4 years ago

icici bank is not charging any service charge for other branch while psu banks are charging.

China food scandals: Will the government act against own companies?

Continuing food scandals in China do bring up a question, perhaps far more disturbing. If the government cannot protect babies or its people, how much protection do investors or markets get?

 
Regulations are usual supposed to protect ordinary citizens. There are regulations for food, professions, workers, products, banking, and most important, regulations for markets. But regulations are tricky things. Too many, and an economy gets bound in red tape. Too few and people start to get hurt. But it is not just the regulations themselves. They do not exist in a vacuum. They are part of a larger infrastructure. Without other laws, good courts, executive enforcement and information, regulations may not work at all. When regulations don’t work, they affect markets—often around the world.  
 
The Chinese have a problem with milk, actually infant formula. In 2008 Chinese companies were found to be mixing melamine into the formula. Melamine or more precisely melamine formaldehyde is an organic chemical commonly used in plastics, adhesives, countertops, dishware, and laminates. The Chinese companies had a profit motive. By mixing melamine into the milk powder or infant formula, they were able to make the product appear to have higher protein content. Sadly, it had another effect. It killed six babies and afflicted another 300,000 with kidney problems.    
 
The affect on the Chinese was dramatic. To this day, a food safety issue will create a firestorm of abuse on the internet. There were several prosecutions and two executions. The director of the regulator in charge of assuring food safety, Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), was forced to resign. Chinese leaders vowed to enforce the law and prevent any subsequent lapse in standards. But there was a problem. 
 
Two of the companies involved in the scandal, Sanlu and Mengniu, are at least partially state-owned. It is always difficult for the state to enforce rules on itself. The issue became apparent when it was revealed that the companies involved in the scandal just recycled the milk rather than destroying it as they had been ordered by the central government. 
 
They simply flouted the law, because with the conflicts went corruption, so the problems continued. In April of 2011 Mengniu, the country’s largest dairy company, and Changfu, a smaller company, sold products that had excessive levels of flavacin M1, a substance that can cause liver cancer. Later that year in December, other milk products produced by Mengniu made 251 students sick and a batch of their cream was pulled from shelves when it was found to contain “alarming levels” of bacteria. Last June, another dairy, Yili, the largest by revenue and supposedly privately owned, sold baby formula contaminated by mercury. As recently as December 2012, five months ago, Mengniu had to destroy some of its products, because they contained aflatoxin, which can also cause liver damage. 
 
With the possibility of severe health problems for any baby drinking Chinese made formula, it is hardly surprising that Chinese parents are buying foreign brands. To fill the need they have turned to purchasing products from New Zealand, the world’s largest milk exporter. New Zealand alone produces 60% of the world’s supply of milk powder. New Zealand dairy farmers were able to profit enormously from the lax regulation in China, until they were hit by a drought, the worst in 30 years.
 
With their main source of infant formula restricted, Chinese parents and importers became more creative. The regulatory problems in China began to affect markets across the world. First it was Hong Kong where people attempting to travel to China with more than the two container limit are subject to arrest. This is difficult to enforce since smuggled cans can fetch premiums of between $35 and $50. 
 

With such a price differential, exports from Europe became profitable. Major retailers in Germany, Britain and the Netherlands began to ration purchases. As shortages mounted, local parents scrambled to find milk powder and began to stockpile the product. Even with the $80 shipping cost and import restrictions, the demand continued. 
 
The irony is that several large western companies that manufacture baby formula, like Abbott and Pfizer, also manufacture and sell their products in China. The companies maintain that their Chinese produced products are made to the exact same standards as their formula sold in the US or Europe. But the Chinese have reason to distrust even the western brands produced locally. In fact they distrust anything packaged in China. They are right to do so.
 
According to a recent report on Chinese television, most of the imported milk powder is fake. According to the reporters from CCTV, a search of several large supermarkets discovered that the majority of milk powder sold was labelled as imported. There are about 100 well-known foreign brands in the world. Of these, only 20 are sold in China. However, the supermarkets all sold over 100 products with foreign names and that many of the labels were falsified.
 
The CCTV report is no doubt biased. As many western companies in China know, there is always the possibility of brand slander. Luxury brands including Hermès, Hugo Boss and Tommy Hilfiger Chanel, Armani, Christian Dior, Zara and Burberry have been attacked as sub-standard. Coke, Heinz, Procter & Gamble General Mills, Lipton teas, Colgate-Palmolive all have been accused of selling adulterated products.
 
If regulation doesn’t work, the government can always try a publicity stunt. The Chinese Diary Industry Association recently commissioned a third party testing organization to conduct what it stated was an unbiased test of 25 brands of milk powder sold in Beijing. They tested 13 domestic brands, three foreign brands produced in China and nine imported brands. Predictably, everything produced in China passed with flying colours. 
 
But all the publicity in the world doesn’t help much when people continue to get sick from eating food in China. Recent problems include water-injected meat, fake beef and mutton made from rat and small mammal meat, excessive levels of hormones and antiviral drugs in chicken meat and thousands of dead pigs dumped in the river. These issues were followed by the usual admonition for “Local governments at all levels should strengthen their organization and leadership, to severely crack down on fake beef and mutton and other illegal and criminal activities.”
 
But any law or enforcing any law is doomed to fail in any system where information is suppressed and the government tries to regulate itself. The continuing food scandals do bring up another question, perhaps far more disturbing. If the government cannot protect babies, how much protection do investors or markets get?
 
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)

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Garnering money has never been easy as regulators are still in slumber!

Do not ask the investors’ for PAN number, address proof or for any KYC. Just promise huge returns in few months and give 35-40% commission to agents and voila! You can garner any amount of money from people, both educated or uneducated living in urban and rural areas. And don’t worry about the regulators. They would be the last one to know about your fortune

 
These days raising crores from the public is easier than it was in the past. Anybody with a gift of the gab can pull it off to collect crores just by styling as first time budding entrepreneur and flourishing a colourful brochure containing a glamorous business plan-cum-prospectus promising great returns on investment. 
 
The road-smart IPO (initial public offer) promoters wanting to make big impact IPOs just flaunt some Masters qualification with an equally phoney Doctorate in either management or industry from an unknown phoren university. No questions asked for post-qualification hands on experience!  Armed with this they then get on board the right connections at different levels in the financial world, media, some political big-wigs, celebrities including P3 glitterati to sign in as “joint-promoters”. Then tie up with big name merchant bankers with right contacts with auditors, preferably from amongst the Big Four, to attest the due diligence report justifying the inflated offer price/premium, even before their entity even came into existence or turned out a single finished product or earned any revenues! Armed with this, the next port of call was a governmental or private development finance institution or bank for term borrowing for land, building and later equipment because all this forms a part of the offer document. The IPO when out then is said to be “oversubscribed” many times over! 
 
Earlier the Reliance group were pioneers in raising monies with all kinds of unusual names like Fully or Partly Convertible Debentures with coupons and illu-pillu twin issues. This took place in the Controller of Capital Issues era in the pre-SEBI (Securities and Exchange Board of India) days. Taking a cue or a precedent, now Sahara, without having to submit voluminous disclosure documents to SEBI or any other authority goes further than Reliance to collect Rs19,000 core Optionally Fully Convertible Debentures to be converted into shares of other unlisted group firms
 
Saradha went on to collect what they denominated Advances from the gullible public against promises to allot land/apartments from one to ten years, others were promised fantastic returns from potato fields, mango and strawberry orchards, potato, teak plantations and emu farms. Both conveniently avoided. Both of them conveniently avoided the elaborate public issue procedural compliances like Red Herring Prospectus and other filings with numerous disclaimers, road shows, TV promos, media ads promoting the proposed CSR activities. 
 
Aarti Krishnan,  recently writing in the Hindu Business Line on Raising capital made easy has a quite an interesting take—“If you are not overly scrupulous and willing to exploit loopholes in the law, here is a ‘business model’ to raise thousands of crores of rupees from retail investors (through chit funds).. The first step to raising public money, without attracting unwanted attention from the numerous regulators, is to keep your identity delightfully vague. Make sure you are not a listed company, a mutual fund, an insurance company, a finance company or even a chit fund.  Holding yourself out as any of these would require you to register under a relevant authority, bringing with it many rules and regulations governing capital raising. Instead... calling yourself XYZ ‘group’ the onus will immediately shift to the regulators to prove that you do fall under their jurisdiction that is likely to take a long time in the Indian courts… Taking on the Sahara group SEBI had to fight a legal battle all the way to the Supreme Court just to establish that it did have powers to regulate unlisted entities raising public money. The same is now playing out with the Saradha group, which appears to be neither a chit fund nor a finance company... Ensure that the instrument through which you raise money is neither a share, nor a bond, nor a deposit but a hybrid that defies any of these descriptions. The trick is to assert that it is not a ‘security’ at all, so that the onerous security market laws about public offers or public offers or disclosures simply cannot apply to it.” 
 
The Saradha group is alleged to have mobilized over Rs20,000 crore before it went bust. Now the other hitherto low-profile companies in this game are out in the public by  taking heavily to the print and electronic media to stave off negative perceptions and to  salvage their image and allay investors’ fears by even airing TV commercials and large scale advertisements in local dailies asserting that they continue to remain “asset-based economically proficient companies” by showcasing projects in which the investors’ funds are parked and also participating in live TV chat talk shows opening up to media queries. One of the outfits—the Rose Valley group—has to its credit national award winning films. The movie Kagajer Nouka –Paper Boat featuring the story of two freedom fighters—one true to his ideals and another setting up a deposit taking company duping public—was prevented from being released. 
 
Sahara and Saradha will hereafter be referred to as S&S have chosen the softer options of signing up big names from cricket, football, hockey and tennis as brand ambassadors to create confidence in the public. While Sahara showcased reality in Ambey Valley near Mumbai, owned in-house TV channels and an airline, Saradha went overboard by setting up myriads of corporate entities to undertake unrelated activities ranging from print media and multiple TV channels and even a two-wheeler manufacturing unit that never saw the light of the day. Both of them took care to keep on the right side of all the political parties of UP and West Bengal that were expected to enforce the state Chit Funds Act, which were conveniently winked at for their companies’ transgressions.  
 
The most informal business plan for windfall fund raising by S&S was to involve minimal or least paper work; no procedural hassles of requiring from their investors any proof of identity or residence any PAN or KYC, cash collection with no limit. Their target markets were not educated urban but rural hinterland in remote smaller unsuspecting towns and villages with minimal literacy and hardly any banking penetration, most transactions in untraceable hard cash. 
 
The promotion was made by a large field force from local agents verbally marketing on promises of high commissions going as high as 35%-40% by way of cuts from collections. The agents in turn also recycled their commissions into investments, not aware that the monies that they were collecting was not to be returned and in the bargain they not only stood to loose their commission but also all that they had invested as principal!  Sahara now tells the apex court that they have truck loads of evidence of repayments, evidence that would require the hundreds of auditors thousands of manhours just to shift through the refund payment vouchers with the application forms.
 
Collecting monies is at best a con job of ensnaring gullible greedy people with offers of windfall stupendous returns that they are told no one else on earth can match. This justifies the good old Hindi adage “Duniya jukti hai, jhukhanewalla chahiye”. A smart con man can bring this it best.
 
 On 17 May 2013, top officials from RBI, CBDT and SEBI, Secretaries from MCA and MOF officials who appeared before the Parliamentary Standing Committee on Finance frankly admitted to poor coordination and lack of regulation to control the flourishing chit fund business. They told the Committee the major onus to regulate chit funds lay on the states. A member pointed out the government data itself was faulty—in response to a question in the parliament, it was stated that the regulations are functional in 15 states when it was flourishing in 17 states and six Union Territories. Gurudas Dasgupta of the CPI terms it a complete failure of system lamenting that different arms of the MOF like Revenue Intelligence, Enforcement Directorate, and Income Tax failed to zero on that advertised in news paper offering as much as 30% returns that were quite abnormal. The Committee has suggested that MOF by an executive order bring all deposit schemes under RBI as recommended by the FSLRC. 
   
Raising monies from banks or financial institutions is not difficult either. Not long ago the multi-national HSBC Bank at Mumbai was conned into lending Rs330crore, ostensibly “for upgrading a media library for BBC”. HSBC apparently took the promoter- conman at face value till their enquiries with BBC exposed the con.
 
 The 17 public sector banks lent crores to  the KFA on various  illusory securities that included the brand name, as a part of the corporate restructuring of  debt got its borrowings converted into equity on an inflated valuation of shares at a premium when the company was always in the red from day one; unenforceable personal and corporate guarantees. Now it transpires that the lenders can possibly recover at the utmost 25% of the securities and this will result in the banks having to write off 75%!
 
The CMD of Canara Bank, which has a Rs360 crore exposure out of the Rs4,000 crore to Deccan Chronicle Holdings now states—“The balance sheet does not reveal the exact situation and the company had filed wrong registration certificates, the true financial picture was not revealed and all loans taken were not disclosed, the end use of funds not established… On the recovery of loans of the total about 50% was securitised.”   
 
Most of our developmental financial institutions are saddled with crores advanced to various industrialists who were advanced funds based on pressures and without adequate due diligence. In the railway minister Pawan Bansal corruption enquiry it has come to light that his personal tax advisor was nominated for two terms on the board of directors of Canara Bank which advanced Rs9 crore to a company in the Bansal family group where the CA was a director.  Conflict of interest is not for high flyers!
 
Acceptance of deposits by limited companies both private and public is another mode of raising funds. To overcome the caps imposed by the Acceptance of Deposit Rules just one equity share is allotted and later money accepted under “Unsecured Loans from Shareholders”. This is also included as equity for Debt: Equity computations. 
 
There is an urgent need to tighten measures to protect the interest of investors by bringing about stricter monitoring by the regulators.
 
(Nagesh Kini  is a Mumbai-based chartered accountant turned activist.)

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COMMENTS

Naresh Nayak

4 years ago

Nothing works in India. The regulators if they act, do it belatedly. The police is darn corrupt. The Judiciary has 500 years of cases to close. So what is the solution? Invest in Fixed deposits. Deal only with people you trust in person after knowing them well. Dealing with insurance, corporate fixed deposits are a hit and miss operation. Good investors (retail) who have made money in India have only parked money in fixed deposits and purchased gold! If as a retail investor you did only these two things it would be a positive return on capital echoing Warren Buffets singular philosophy - Don't lose money.

R Balakrishnan

4 years ago

Nothing comes in the way of an investor and his money getting parted. And the frauds also afford the best of the lawyers leaving the regulators with their backs to the wall even if they can prosecute. The practice of 'negative retainers' by the legal profession is another big contributor

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