While many appreciate the progress from ATM cards to debit cards, there are many bank customers out there who do not see any real reason for shelling out a hundred rupees every year as annual fees
The banking industry has come a long way and today we are almost at a stage where everyone has a bank account. Those of us living in cities could have two and those living in metros could have even three to five accounts. I remember reading somewhere that the upper middle class has at least six bank accounts per family. From being a privilege for the wealthy and for those working in the Government services, banking has become a basic necessity of life. In fact, most parents get a bank account in the name of their as soon as they get him/her into school. How could they not? After all, a whole bunch of bankers run around them explaining the advantages of opening a child account, how it could help the kid become responsible, how it will help in education, and so on. The moment you open a bank account, a recurring deposit in the name of the kid and a life insurance policy are up next. That's okay. After all, the world is growing.
Banks want to have their cake and eat it too. Guess what, they have been successful at it.
Over the last many years, I have been looking at the changes happening in the banking sector. After computerization of the banking industry, banking has more to do with marketing than with calculations. The computers and software take care of all the calculations and thus, the banks are now better positioned to use human resources to generate revenue. Not so long ago, a bank employee would spend majority of his time in accepting deposits and making payments across the cash counter, making him a cost centre for the bank. Modern bankers (like ICICI Bank, HDFC Bank, etc) aggressively market their products by showcasing their services like ATMs, Internet Banking, Phone Banking, etc, making them a revenue centre.
Inter-bank fund transfers through internet banking attract charges too. Internet banking was supposed to benefit the bank by reducing the cheque clearing work, thereby leaving behind a lot of time for bank employees to work on other fronts. Its a different story that phone banking, which was supposed to help customers on a toll free number, is now offered on a paid line. So, all these services that came up to help customers have helped the banks more than the customers. Of course, no one can deny the many conveniences we enjoy today. The point I want to make is that all that was free, now comes at a cost.
Even an SMS sent to customers are subject to charges now. The SMS initiative came as a measure to ensure safe banking and now it costs the customers to ensure that he banks safely. Somehow, it doesn't convince me that my bank account is not safe with the banks with this paid SMS facility.
Debit Card Annual Fees - A trap?
Before declaring charges for their SMS facility, the banks introduced annual fees for debit cards. This one is perhaps the most annoying charge that today's customers pay. I personally had nearly 10 debit cards on my name up till some time ago (the side effects of working in the banking and financial services industry). One fine day, I realised that I had been paying a lot of money in the name of 'Debit card annual fees'. At Rs110 per card, I had been paying almost Rs100 a month. Since I would hardly use those cards I started closing those accounts one by one and yet, I was left with five of them. I was still stuck with paying Rs500 plus taxes for no sensible reason whatsoever.
Banks benefit more in terms of time and cost than the customers
Banks came up with the idea of ATMs in order to save time for customers and more importantly, for themselves. While customers do benefit from these cards, the banks benefit far more. Imagine the bankers sitting around and processing cash withdrawals of Rs100-1,000 to thousands of customers everyday in today's world.
A large number of customers still do not extensively use cards
It is a well known fact that a large number of customers who possess these cards, especially the ones in rural areas or the ones in business, seldom use these cards. Sole proprietors and, to some extent, Partnership firms have cash on hand, which they use for their daily expenses and this cash is received by them in the course of daily business. Most of their withdrawals are in the form of payments to third parties by cheques or transfers. So, the card lies in their pockets or lockers and they keep paying the annual fees.
Use of debit cards for shopping is very low
Banks promoted debit cards saying that these cards can be used at ATMs of other banks as well as be swiped at merchant terminals. However, the number of customers using debit cards for shopping is very low. Most customers who have a credit card would prefer swiping their credit card, thereby getting more than a month's time to pay the amount, rather than swiping a debit card where the amount goes off immediately. It is only when there are some offers, discounts, cash backs, etc that customers consider swiping their debit cards.
Five transactions only
The banks' promotion of debit cards quoting that these can be used to withdraw cash from any ATM doesn't appeal anymore. After all, only 5 such transactions in a month are free and the customer has to pay for the 6th transaction. However, banks have continued to offer unlimited transactions at their own ATMs even today.
Banks should bring back the ATM card
While adapting to technology should be encouraged, banks should also provide for such customers who do not want to use technology that doesn't help them. Its like asking a banker to learn Hadoop or Big Data, as they are the latest technologies. There are some banks who are still issuing ATM cards on request. In fact, I got an ATM card from one of the leading private sector bank on placing a request for the same.
There was absolutely no need for the bankers to do away with an ATM card and make the customers opt compulsorily for debit cards. An ATM card is a boon for those customers who do not use the ATM often or do not intend to shop with it. Banks are making big bucks with these charges but it is time they realize that they focus on tailored solutions instead of making generic products. While many appreciate the progress from ATM cards to debit cards, there are many customers out there who do not see any real reason in shelling out a hundred rupees every year. In fact, there are awkward situations when such charges result in a drop in balance, and such a drop results in a cheque bounce. Online consumer forums are full of such complaints.
Reintroducing ATM cards would be a friendly step to help customers who have too many debit cards, or those who seldom use them. Levying an annual fee on all cardholders could be legally permissible but when you look at it from the ethical or customer service perspective, it may not fly well with customers. Although, abolition of the annual fees in totality would be more of a dream for customers.
While the RBI may have indicated the end of its rate hike cycle, Nomura says it sees no scope for rate cuts any time soon and expects policy interest rates to remain on a prolonged pause until 2015
The Reserve Bank of India (RBI) left its repo rate unchanged at 8.00% as was widely expected, as CPI inflation seems to be panning out in line with its target of 8% by January 2015, while risks to the target remain broadly balanced. The RBI cut the statutory liquidity ratio (SLR) by 50 basis points to 22.5% to allow banks to expand credit to the non-government sector, in line with the Urjit Patel committee recommendations. RBI's forward guidance has become neutral to slightly dovish from hawkish up until the previous policy statement, which has fuelled expectations of rate cuts.
While the RBI may have indicated the end of its rate hiking cycle, Nomura says in its view, rate cuts are still contingent on the inflation trajectory and the RBI's estimate of what the real policy rate should be.
"We see no scope for rate cuts any time soon and expect policy interest rates to remain on a prolonged pause until 2015. No doubt, inflation will at times undershoot the RBI projections owing to base effects, but they would have to be sustainably below 8% by January 2015 and 6% by January 2016 for the RBI to start easing policy rates, given that the RBIs credibility hinges on meeting these targets," Nomura said in a research note.
Nomura said, CPI inflation, currently at 8.6% year-on-year (y-o-y) in April 2014, is likely to moderate sharply in second half on base effects, rise back closer to 8% in Q1 2015 and then moderate again towards 6% by January 2016. This assumes an 8% repo rate, 5% per annum increase in minimum support prices (MSP) and steady moderation in nominal rural wages for the forecast horizon of the next 18 months. "If the RBI starts cutting rates, then reaching 6% in 2016 will be difficult unless MSP and rural wages fall even more sharply, which we don't expect," it added.
The RBI replaced the export-credit refinance (ECR) facility with a special term repo. It reduced the liquidity provided under the ECR facility from 50% of eligible export credit outstanding to 32% and also introduced a special term repo facility of 0.25% of aggregate deposits. RBI also reduced the statutory liquidity ratio (SLR) by 50bp from 23% to 22.5%. "Overall," Nomura said,"these two steps are liquidity neutral. We note that the banking system is running an excess SLR of as much as 28% of aggregate deposits, so reducing the mandatory requirement from 23% to 22.5% – especially in the current low credit growth environment – should have hardly any impact from a bond demand perspective. However, steps such as an SLR cut will gain relevance when credit growth picks up at some stage down the line."
Other than improving liquidity, Nomura said it sees the current change in the RBI's policy stance as another factor that should be supportive for rates. "Given the RBI's policy stance has become more dovish, we believe the probability has increased that the next step –whenever it comes – will be a cut rather than hike. This was the main reason why the swap rates and bond yields fell on Tuesday. Put it another way, the market removed the probability of a hike as the next step and introduced some probability of a rate cut as the next step leading to a fall in yields. The 5-year swap rate fell 14bp and 10-year bond yields fell by 6bp on the day. We expect this fall in rates to be sustained as the market will find it difficult to price in the probability of a hike over the coming months, given the central bank's current stance. With that assumption, we expect 5-year swaps to hover in a range of 7.90% to 8.10%. We also expect 10-year bond yields to be in the range of 8.45% to 65%," Nomura added.