Consumer Issues
The Pain of a Financial Consumer

Limited free ATMs use is only the latest blow. Financial consumers are also affected by the inability of regulators to act in time to prevent companies folding up and the lack of regulation and repeated failure of cooperative banks


A few weeks ago, the Reserve Bank of India (RBI) allowed banks to charge their account-holders for transactions on automatic teller machines (ATMs) beyond a threshold limit, with especially stringent limits for six metro cities. Tamizharasan, an advocate from Madurai, was the first to get off the mark to file a public interest litigation (PIL) against this decision. The court (Madras High Court bench in Madurai) issued notices to RBI and the Indian Banks’ Association (IBA) giving them three weeks to respond. 


The PIL alleges that RBI’s move is regressive, in support of select banks, against public interest and should be quashed. Interestingly, on the very day that the media reported this issue, Moneylife Foundation’s trustees too had come to the conclusion that a PIL was the only way to challenge the action. 
Our regular readers would recall that Moneylife Foundation, along with a few other consumer organisations, had protested strongly against this action by RBI; we sent two memorandums. RBI had come out with a strong backing of the bank cartel’s action and claimed credit for at least mandating a certain number of free transactions and capping the charges. 
RBI conceded to only one demand—about the need to create a system for reporting non-functioning ATMs. Here, too, its response was absurd and callous. An official, writing on behalf of the governor, said that RBI will ask IBA to “incorporate ways and means through which customers are enabled to report about ATMs which are not in working condition to the banks.”
Is RBI so naïve as to believe that banks do not know which of its ATMs is not functioning or have not bothered to load adequate cash? On 15th November, Saturday morning, as the weekend was just beginning, the ATM attached to a busy Shivaji Park branch of Axis Bank in Mumbai had no cash. Should one believe that the Bank was unaware of it? As a customer, I reported this fact to the Bank. What difference did it make? Nothing. The Bank gets away with it because RBI does not care. Consumers want action, not a reporting system. 
When the regulator supports a bank cartel by readily accepting their claims about transaction costs without exploring ways to reduce them, what option do depositors have? Only what advocate Tamizharasan has done—file a PIL. But it is important to get the facts and the issues right, to make it effective. 
Fortunately, there are plenty of absurdities in the banks’ claim about limiting free ATM usage charges. First, the stricter limit on ATM transactions applies to six metros, when, in fact, the higher number of transactions should lead to lower costs. Secondly, in-bank transactions, which are much more expensive, are not being charged—unless RBI plans to permit those, too, in the near future. 
Interestingly, ATM charges were a subject of hot debate at an Open House session by Moneylife Foundation on 22nd November, with its new trustees—TS Krishnamurthy (former chief election commissioner of India), Dr KC Chakrabarty (former deputy governor, RBI) and Siddharth Das, COO payment systems at Flipkart. 
Dr Chakrabarty, well known for his brutal outspokenness, said, “I don’t agree with the institutional view of the RBI… on allowing banks to charge for withdrawals from their own banks.” He demolished the claim that customers must pay for services saying, “If banks want to move to a system of transaction fees to be paid by customers, then they must also be prepared to work at very low interest spread. They cannot pay 4% on savings accounts but charge 12% or more on advances and also charge customers for transactions.” 
The low level of consumer activism in India, he said, was forcing consumers to put up with many types of uneven contracts that were bad in law. For instance, he said, a customer is penalised if his cheque bounces (it can even become a criminal case); but a bank that wrongly dishonours a cheque, gets away with, at best, an apology.
TS Krishnamurthy had a similar view when asked about the plight of investors in company deposits, ponzis, chit funds, collective investments schemes and non-banking finance companies. “We need a separate authority to regulate deposit-taking companies and it must be removed from the Companies Act.”
Two other issues that are clear pain-points for ordinary savers came up for agitated discussion. The first was the inability of regulators to act in time to prevent companies folding up and the lack of regulation and repeated failure of cooperative banks. 
Well-known investment analyst, Ambareesh Baliga, asked Mr Krishnamurthy why it was difficult for the ministry of corporate affairs (MCA) to act on investor feedback/complaints about companies. He also wanted to know why the Investor Education & Protection Fund, of over Rs1,000 crore, could not set up a separate body to take care of investors’ issues. 
Mr Krishnamurthy’s broad reaction was identical to that of Dr Chakrabarty. He said, “I totally agree that the present system of investor education and protection is grossly inadequate and there is a need to review it.” He said a lot of money was being spent on investor education but not on protection.
He further said that the new Companies Act had more provisions for regulatory action by the government; but the existing inspection machinery is absolutely inadequate. The ministry takes several years to complete inspection reports by which time the problem has worsened drastically or the company has folded up. 
He wondered why the formula adopted to keep Satyam Computers alive was not used in all other cases, where companies are spiralling out of control. He said, if the government had decided to organise the takeover Kingfisher Airlines and change its management in time, it would have saved thousands of jobs. Instead, by the time the ministry completes its report of unviable companies, they have usually shut down, with enormous job losses. Even as we go to print, there are reports of SpiceJet cancelling flights and a fear that the company is headed the Kingfisher way. Just like an investor protection authority, India needs a corporate restructuring authority that nurses sick companies back to health rather than encourage them to die, as is the case with India’s Bureau of Industrial and Financial Reconstruction (BIFR), he said. 
When it comes to cooperative banks, which are at least partly under the RBI’s benign watch, the situation is almost scary. Dr Chakrabarty said that dual regulation is part of the problem but not the only one. He said many rural cooperative banks did not even have a licence to operate but were doing so. Responding to a question, he said, “Some have applied for a licence in 1966, but RBI has not yet decided on it.” A bank analyst in the audience pointed out that consumers were expected to make informed choices, but many cooperative banks were not even obliged to put out their annual reports.  
At the end of a brutally honest interaction with two people who have held top offices in their respective fields, it was clear that the state of the financial consumer was far more worrying than we thought. 
Mr Krishnamurthy suggested the need for research and surveys to find out why most investors are not being protected today—particularly the small investor. Dr Chakrabarty is clear that a separate body for financial redress is the answer and he saw hope in the fact that there is a global consensus on this issue. Over the past five years, Moneylife Foundation’s efforts have only validated this view. 
Investors have as many complaints, or more, about the insurance regulator and the capital market regulator. Both are perpetually tinkering with rules while ignoring basic confidence-building actions like grievance redress, compensation and punishment for wrongdoing.



Yerram Raju Behara

3 years ago

I notice that banks like even the SBI are adopting invidious ways of charging the customer for ATM use like feeding some of the urban ATMs with just Rs.100 notes and pegging the release at Rs.3000. For just Rs.15000 the five-time free usage gets exhausted. Second, there are ATMs like those in Prashanthinagar Branch (UPPAL), Hyderabad of SBI that work only for 50 days in a year for the past five years and any number of customer complaints have not resulted in the change of machines that are too old to function.

Rakesh Parikh

3 years ago

Agreed - invariably around long weekends ATMs of even larger banks run out of cash; not only that very often ATMs are not functioning too; often they dispense only Rs 500 or Rs 1000 currency notes & one cannot even choose Rs 100 in almost all ATMs; why isn't RBI considering this & penalising the banks if found true upon complaints? Guess perils of having banks listed & concentrating on maximising profits..


3 years ago

first the banks said don't come to the counter, go to the ATM. now they say use the ATM sparingly or pay for it. pay for what ? for withdrawing the money that we have put in the banks. before banks start telling us "deposit and don't withdraw" is it not wise to ask the question why deposit in the banks at all ? why not keep in cash or kind ?

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Murli Deora, senior leader from Congress, passes away in Mumbai

Murli Deora was Mayor of Mumbai from 1977 to 1978 and elected to Lok Sabha four times from Mumbai South, a seat later held by his son, Milind


Senior Congress leader and former Union Minister Murli Deora passed away at Mumbai Monday morning after prolonged illness. He was 77 and is survived by his wife and two sons, including former MP Milind Deora.


Murlibhai, as he was known as, died at around 3.25am. He had been unwell and admitted to hospital. He was brought home two days ago, family sources said.


Deora’s mortal remains would be kept at the Mumbai Congress office, where party workers would pay their last respects from 12 noon to 2pm. His last rites would be performed at Chandanwadi Crematorium later in the day, the family sources said.


Deora, who held several important portfolios during his decades-long career, first contested the civic elections in Mumbai in 1975.


An economics graduate, Deora was Mayor of Mumbai from 1977 to 1978 and elected to Lok Sabha four times from Mumbai South, a seat later held by his son, Milind, who is also a former MP and ex-Union Minister.


Deora was serving his third term as a Rajya Sabha MP.


The Congress veteran held the portfolio of Petroleum and Natural Gas during the UPA-1 regime. He had also served as the president of Mumbai Congress for 22 years.


He joined the Union Cabinet in 2006, shortly before he turned 70 and led oil diplomacy in Myanmar, Algeria and Egypt, and held talks with ministers from Sudan, Chad, Ethopia and Comoros.


Deora also hosted the first India-Africa Hydrocarbon Conference and Exhibition in November 2007. In July 2011, Deora became the Minister of State for Communications and Information Technology.


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