RBI Issues Consumer Charter and then comes up with a new rule for ATM use that goes against consumer interests
The Reserve Bank of India (RBI) did two things in the last fortnight. It released a well-appreciated 5-point consumer charter (CC), and then, on 14th August, it issued a very anti-consumer directive restricting the free usage of automatic teller machines (ATMs) by customers. In effect, the positive signals sent out by the CC were negated by RBI’s action on ATMs. What is the connection, you may well ask.
Well, for starters, while the CC was discussed with consumer organisations and stakeholders, RBI completely ignored their suggestion that a motherhood statement about how to treat customers makes no sense without consequences for unfair treatment. At the least, this would require a drastic rewriting of the Banking Ombudsman (BO) Act as well as how the BO functions currently.
RBI may even want to consider a separate consumer protection legislation which prescribes a clear process of lodging complaints and their redress with declared penalties. An important part of such legislation would be the conversion of persistent complaints about a bad product or service into a class action, so that all consumers are benefited without the need to file individual complaints. None of our financial regulators takes up decisions on behalf of a class of consumers and, since banks sell insurance and mutual funds, this attitude affects bank customers in multiple ways.
Now, consider how this plays out in connection with RBI’s diktat to restrict free usage of ATMs. Currently, banks have the freedom to decide their charges and interest rates without reference to RBI. So, if some banks found it prudent to curb usage or disallow third-party transactions, they could have gone ahead and done it without RBI’s intervention. So why the RBI directive? To make a anti-consumer action look like a regulatory diktat?
The Indian Banks Association (IBA) used its influence on the central bank to ensure that angry customers do not vote with their feet and switch banks. Getting RBI to issue a directive removes the problem.
It also ignores the fact that IBA behaves like a cartel under RBI’s benign watch. That is how all banks act together to charge for mobile texts and debit cards and ensure that interest on savings bank deposits remains a low 4% at all but a couple of new banks.
Now, consider how banks have got RBI to restrict the usage of ATMs by urban consumers. RBI’s press release says, “The policy framework of the Reserve Bank has aimed at fostering the growth of non-cash payments.” Hence, RBI has issued a directive, restricting free ATM transactions from 1st November for urban consumers in six cities on the grounds that “there is a growth in access points and associated infrastructure costs in larger towns and cities.”
So, RBI’s way of ‘fostering non cash payments’ is by sanctioning punitive charges and remaining silent about the imposition of ‘convenience charges’ on online bookings by airlines, cinemas and theatre companies. This is completely contrary to the Damodaran Committee’s recommendations to ‘encourage and give incentives’ to customers, to switch to electronic transfers.
But RBI, which has come out with a brand new consumer charter, is clearly not in listening mode. Moneylife Foundation has submitted two memorandums to RBI protesting against its attempts to penalise savers. The first was in February 2013 on its plan to “Disincentivize Cheque Usage” through punitive levies and charges; the second was in January this year against the move to restrict usage. Both have been ignored in favour of bankers’ lobby.
So what exactly happens on 1st November in terms of ATM costs? Under the new rules, you are only entitled to five free ATM transactions at your bank and these would include non-financial transactions to check your balance or ask for a chequebook.
Further, anything beyond three transactions at another bank’s ATM located in six metros (Mumbai, Delhi, Bengaluru, Chennai, Hyderabad and Kolkata) will be charged Rs20 per transaction. Those in smaller towns and holders of no-frills accounts will continue to have five free transactions.
Let us again examine why this action has outraged customers. Customers in metros affected by RBI’s action prefer to use private bank ATMs for several reasons. These are better maintained and have better security and surveillance.
Contrary to RBI’s belief that service quality drives the customer’s choice of banks, most often, people are tied to a bank because of salary accounts, scarce lockers, electronic payments for utility bills, credit cards or loans. It is not easy to cut these strings frequently.
As it is, the decision to charge for hitherto free services, like mobile text alerts and higher charges and increase in debit cards fees, has become a source of irritation and discourage multiple bank accounts. Angry and suspicious customers want to know why nationalised banks continue to expand their ATM networks so rapidly if transactions are unviable.
Some banks tell us that it is to extract a fee from small traders and businessmen who tend to use a savings account for their business needs. If this is true, the high ATM charges will only push this segment to switch to cash rather than generate additional revenue.
If RBI has done any detailed study or investigation on ATM usage, it has certainly not chosen to share it with us consumers who are affected by its diktat.
It is also important to note that RBI did not succumb to pressure from the banking lobby, as long as deputy governor Dr KC Chakrabarty was in charge of customer services. He was on record saying, “It is ridiculous that banks are charging customers for withdrawing money and that too from their own ATMs—it never happens anywhere.”
Let us now examine RBI’s move in the context of the recently issued CC. First, it discriminates against urban customers, but because it is RBI’s diktat, the rule does not apply. Also, while the action seeks to impose a cost on the customer, there is no obligation on banks to ensure service quality. The circular makes no mention of it.
A reader, Trivendra Sharma, points out that ATMs of nationalised banks are often out of order, sometimes because poor quality machines cause currency to get stuck in the machine. This forces customers to use other bank ATMs. Nagesh Kini, a consumer activist, points out that banks do not necessarily have a 24x7 complaints centre. Also, nationalised bank ATMs often run out of currency during long bank holidays (there are three 4-day holidays this year); there is no obligation on banks to ensure a top-up during this time.
Veeresh Malik, a Moneylife columnist and activist, raises other issues. He says all bank ATMs must have a centralised identity number and the facility to call/type out complaints regarding non-functional ATMs or those that have run out of cash. Banks must be penalised for poor service, with specific compensation to the customer.
Accessing data until April 2014 from RBI’s website on the total number of ATM transactions and their value, Mr Malik finds that the average transaction size is Rs3,146.85. This again suggests that charging for ATM transactions (beyond five) is aimed at small businesses and not because tiny transactions by account-holders impose a huge cost burden.
Mr Malik also argues that RBI must direct banks to use plain paper to print transaction receipts, not carcinogenic thermal paper that fades quickly. They must ensure zero-incidence of fake Indian currency notes (FICN) in ATMs, with a detection and penalty system in place.
The decision to permit banks to levy charges on ATM transactions is not, in itself, a move that should shatter consumer confidence. But, by choosing to issue a diktat on what should have been a decision by individual a reciprocal service obligation on banks, RBI has ended up signalling that it does not particularly care about the consumer. In that case, the CC will end up being a meaningless piece of paper.
Sucheta Dalal is the managing editor of Moneylife
. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]