While the banks have considerably benefitted from the introduction of CBS, the customers of banks have yet to reap the benefits

The biggest metamorphosis in the banking industry during the last decade has been the introduction of ‘any branch banking’ through the implementation of ‘core banking solution’ (CBS) across the country. Prof. Ashish Das of IIT, Mumbai in his report of October 2014  has analysed the discriminatory treatment meted out to bank customers in respect of service charges levied while availing service from different branches of the same bank since the introduction of CBS by the commercial banks in our country. He has rightly suggested regulatory actions on several fronts to bring in a meaningful, reasonable and logical rationale to eliminate any home / non-home (branch) discrimination of customers and thus protect millions of small and medium depositors.

In fact, this subject requires much deeper study, more so in the context of the aggressive campaign of the central government to bring into the fold a large number of people mainly from the rural areas that are outside the ambit of banking. Banks in India went in for total computerization in late nineties of the last century as it became physically impossible for them to service growing business transactions through manual operations.

Even the cost of servicing through large number of employees was not only prohibitive but also fraught with several operational risks. In addition, the new technology called ‘CBS’ came handy for banks to bring down their cost of operations, though in the process, helped banks’ customers as well to get the benefit of technology in their banking operations.  

What is core banking solution (CBS) and how does it help bank customers?

CBS is a technology platform used in networking of branches of banks, which enables customers to have access to their account through multiple delivery points, including different branches of the same bank, through ATMs, internet, and mobile phones etc., irrespective of the branch of the bank where the account was originally opened and maintained. CBS, inter-alia, is a step towards making banking services available to the customer anywhere and anytime through day and night.

One of the public sector banks has enumerated in its website the following benefits to its customers of CBS branches:     

“All CBS branches are inter-connected with each other. Therefore, Customers of one CBS branch can avail various banking facilities from any other CBS branch located any where in the world. These services are:               

     
a. To make enquiries about the balance; debit or credit entries in the account.       

b. To obtain cash payment out of his account by tendering a cheque.                             

c. To deposit a cheque for credit into his account.                                                                           

d. To deposit cash into the account.        

e. To deposit cheques / cash into account of some other person who has account in a CBS branch.                                                                                                                                                             

f. To get statement of account.                                                                                                                  

g. To instantly transfer funds from his account to some other account – his own or of third party, provided both accounts are in CBS branches.                                                                             

h. To obtain Demand Drafts or Banker’s Cheques from any branch on CBS – amount shall be online debited to his account.       

i. Customers can continue to use ATMs and other Delivery Channels, which are interfaced with CBS platform. Similarly, facilities like Bill Payment etc. shall also be available.

“A CBS branch is like a Service Delivery Centre. Back office processes are handled through technology at some other site, called Data Center. Branches, therefore, have more time for serving customers. This improves the quality and efficiency of the services rendered and the customer is directly benefited by way of satisfying and happy banking experience. However, to safeguard the interest of customers, Bank has placed certain restrictions on the amount of transactions, which are handled through other branches under CBS.”  

How banks have benefitted from introducing the core banking solution -CBS?

With the introduction of CBS, the cost of servicing customers went down considerably for banks, besides helping them to improve their capability to service a large number of accounts with minimum cost as evidenced by the following facts and figures.

Table: 1- Growth of business of all scheduled commercial banks (SCBs) and their employee position for fifteen years from 1983 to 1998 (before introduction of CBS)

                    
Table: 2 - Growth of business of all scheduled commercial banks (SCBs) and their employee position for fifteen years from 1998 to 2013 (after introduction of CBS)

                                                                               
The pros and cons of Core Banking Solution

As stated in the tables above, while the business of banks grew exponentially, the number of employees went up marginally, thereby saving them huge manpower expenses with attendant benefits of lower capital cost on infrastructure. The banks, however, needed to invest on hardware and software on a regular basis, but this was much less compared to the total savings in work force cost on a continuous basis year after year.

On the other hand, customer service started deteriorating slowly, and the biggest casualty of CBS is the personal relationship between banker and customer. For every hiccup in service quality, banks started blaming computers and expressed helplessness in servicing customers across the counters. Here are a few examples of how customers are being treated today under the CBS environment:

1. Recently a senior citizen went to a public sector bank to renew his fixed deposit for a further period of five years. Even after waiting for an hour, he could not get his renewed deposit receipt, as the printer was not working due to a technical snag. The depositor was asked to come the next day to collect the renewed deposit receipt, which he did with all the inconveniences and added cost of travel.

2. In another instance, a savings depositor asked for more information on a credit entry as the passbook contained only a reference number without any details. The clerk declined to give any more information about the credit, for want of details in the computer. When the customer shouted at the counter clerk for not complying with his request, the branch manager came and pacified the account holder, who was later provided with all the information that was available at the branch, but the clerk had not taken the trouble to enter full details while making the entry in the first instance.          

                                                  
3. It is common experience in many banks that you do not get your passbook written up instantly because of the problems either with the computers or with the printers. Many a time, customers are asked to come the next day just to update their passbooks.  

4. A senior citizen depositor found to his dismay that the bank continued to deduct tax on the interest credited on his fixed deposit -FD though he had submitted Form 15H in time to the branch. When he sought refund of tax so deducted, he was asked to get the refund from the Income Tax department by filing the return of income, when he had no taxable income. The bank simply put the blame on the computers for deducting the tax, and said they had no authority to refund the tax, as it was already remitted to government.

5. The most deplorable aspect of tax deducted at source (TDS) came to light when a bank continued to deduct tax on behalf of a deceased depositor, who was a joint depositor with his wife, though his name was deleted from the deposit receipt at the request of the survivor. The bank subsequently informed the surviving depositor that their computer software does not provide for deletion of the first depositor’s name and hence deduction of TDS under his name was done automatically by the computer. The spouse was asked to file the tax return in the name of her deceased husband and get refund of tax wrongly deducted by the bank.

The travails of bank depositors are never ending and these are only illustrative and not exhaustive instances of problems encountered by customers, who silently put up with these inconveniences, despite banks proclaiming that they provide world class banking service. It does not mean that there were no mistakes committed before the introduction of CBS, but all those mistakes were corrected then and there to the satisfaction of customers.                                

                                                                                 
What are the directions of RBI with regard to inter-sol (inter-branch) charges?

Do customers really get all the benefits listed above from a branch other than the home branch where the account is opened and maintained? Banks did make available most of these services but at a cost to the customers. Banks used to levy different charges for different services, if availed at a non-home branch till the Reserve Bank of India (RBI) issued guidelines in this regard. On 1 July 2013, RBI issued a circular to all banks directing them as under:     

“In order to ensure that bank customers are treated fairly and reasonably without any  discrimination and in a transparent manner at all branches of banks/service delivery locations under CBS environment, 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. Accordingly, if a particular service is provided free at home branch the same should be available free at non-home branches also. There should be no discrimination as regards intersol charges between similar transactions done by customers at home branch and those done at non-home branches.”      

                                                          
The RBI has given total freedom to banks to levy charges subject to such charges being fair, reasonable and made available without any discrimination and in a transparent manner at all branches. Who decides that the charges are fair and reasonable? Each bank may consider what they charge is fair and reasonable, while the customers of each bank may feel otherwise. Will the RBI sit on judgment over who is right and who is wrong?

The biggest loop-hole in these directions of RBI is that banks are only asked not to discriminate between similar transactions done at home and those done at non-home branches. This gives complete leeway for banks to start levying a charge for transactions done at home branch, (which is so far free) to enable them to levy the same charge at non-home branches also. The RBI directive, therefore, works against the interest of bank customers who will not only lose the existing facility of free transactions at their home branch, but also will have to pay at non-home branches.   

No doubt, technology is necessary to speed up the process of banking operations and provide seamless delivery channels to meet the growing needs of bank customers.  It should serve as a tool for improving customer service and make banking a delightful experience to the common people of this country. But unfortunately, neither the banking regulator nor the Indian Banks’ Association (IBA) has so far ventured to find out how far the technological developments in banking have served the needs of customers. Nobody wants to know whether they have stood the test of meeting the aspirations of millions of bank customers who are already in the banking fold and those who are being willy-nilly asked to open bank accounts in the name of Prime Minister’s Jan Dhan Yojana.

In short, while the banks have considerably benefitted from the introduction of CBS, the customers have yet to reap the benefits. This is because banks have not taken steps to ensure that technology does not replace the human interaction, which is essential for a service industry like banking, more so in our country, where a large majority of our people are neither financially literate nor tech-savvy to understand the intricacies of dealing with a modern bank of our times. Besides, banks for reasons of their own, have not thought it fit to pass on the benefits of technology to customers by reducing bank charges and other levies, which are continuously on the rise, causing considerable hardships to the common people of our country. And as if to add insult to injury, RBI has permitted banks to restrict the free usage of ATMs which will directly hit the common man, for whose benefit banks were first nationalized in 1969.

(The author is a banking analyst and he writes for Moneylife under a pen name ‘Gurpur’)

SBI, HDFC Bank and Axis Bank have led the move to charge customers for ATM transactions. Moneylife Foundation wrote to the RBI protesting the move, but it made no difference. The RBI however accepted our point that customers often use other bank ATMs because theirs dont function. However, RBI has allowed banks to charge without making any attempt to put a reporting system in place.

The Reserve Bank of India (RBI) has decided to back banks’ move to charge for ATM transactions beyond a threshold limit despite protests by consumer organisations and depositors. In response to feedback and a memorandum from Moneylife Foundation on why these charges are unfair, the RBI ignored all the issues raised on behalf of consumers except the one about non-functioning ATMs. Moneylife Foundation had pointed out that there is no system in our country to report non-functioning and 'out of order’ ATMs that we as customers see almost every time we want to use it. This makes people to hop around and use other bank's ATM that is working. Another crucial issue is the restriction on money withdrawal. If someone needs, let’s say Rs25,000, but the ATM has withdrawal limit of Rs10,000. In this case, the person would end up making all three permitted transactions there only.

RBI’s response: “We thank you for your suggestion about on-line reporting of ‘out of order' ATMs. We advise that we are pursuing the matter with banks through IBA to incorporate ways and means through which customers are enabled to report about ATMs which are not in working condition to the banks.”

Another issue left unresolved is the security of customers while using ATMs. Remember, the brutal attack on a lady manager of Corporation Bank in an ATM booth in Bangalore earlier this year? Yet, banks have been systematically withdrawing security guards in most of their ATMs to save on cost of maintaining ATMs. Most of the ATMs do not have the system of regulating the entry into the ATM booth through the use of ATM cards.

Moneylife Foundation had sent two memorandums to the RBI governor Dr Raghuram Rajan. The one sent on 9 September 2014 on “Usage of ATMs-Rationalisation of number of free transactions”.

The memorandum stated, "The setting up of ATMs by banks is to reduce not only the pressure on their counters, but also to reduce cost of operations through automation. By levying charges for use of ATMs beyond a certain number, banks are scuttling the optimum utilization of technology, thus depriving the benefits of technology to bank customers."

Replying to this, the central bank said, "...we have examined your suggestions and advise that charging for services rendered by banks at their own ATMs as well as the decision to apply differential pricing for cash and non-cash transactions has been assigned to banks which can be decided by them based on their considerations relating to infrastructure deployment, branch expansion etc. However, in order to ensure that customers are not unduly inconvenienced, we have mandated a certain number of transactions to be provided free of charges and have also prescribed the maximum fee that the bank may decide to levy, as per its Board approved policy."

Earlier, in February 2013 MoneylifeFoundation had protested a 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.

On 14 August 2014, the RBI had issued a circular restricting the free usage of ATMs by customers. At present, banks have the freedom to decide their charges and interest rates without reference to RBI. Therefore, 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 an anti-consumer action look like a regulatory diktat?

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. (Interesting pointer, Hyderabad is considered as a metro when it comes to ATM usage, but taxpayers from this city are deprived house rent allowance-HRA benefits in Income Tax filings saying that it is not a 'metro' city!)

The Indian Banks Association (IBA) is often seen using 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.

According to the statistics provided by RBI in their website, it is observed that for April 2014, the average amount of withdrawals through ATMs per transaction was of the order of Rs3,146.85, which indicates that the ATM operations are generally done by middle and the lower middle class population of our country. To impose additional charges for withdrawal on such weaker section of our population is unjustified, as most of these have hand to mouth existence.

The same RBI, in 2007 had asked all commercial banks to freeze ATM charges and later on 1 April 2009 abolished it algother. Between 2007 and March 2014, the number of ATMs in the country has gone to over 1.6 lakh from 27,000. Similarly, the number of point of sales (PoS) terminals increased to 10.65 lakh in 2014, from 3.2 lakh in 2007. In addition, the central bank has allowed couple of corporates to set up what are called ‘white-label’ ATMs not owned by banks, but owned and operated by private companies with tie-up with banks.

While earlier, it was private banks that took lead in increasing charges for customers, this time it was the country's biggest, state-run lender. State Bank of India (SBI), in a notification said, customers maintaining average monthly balance of Rs25,000 to Rs1 lakh will get the benefit of unlimited free usage of its own ATMs. However, at other bank ATMs in six metro cities, these customers will be charged beyond three transactions in a month and five transactions in other centres. Customers with account balance of more than Rs1 lakh account balance will enjoy unlimited free transactions at SBI's own ATMs and other banks' ATMs as well.

Private lenders, HDFC Bank and Axis Bank immediately followed suit and capped free usage in above mentioned six metros. From 1st December, both HDFC Bank and Axis Bank would start charging fees on ATMs beyond five number of transactions per month.

HDFC Bank will charge Rs20 for cash withdrawals and Rs8.5 (excluding taxes) for balance enquiry and mini statement, Axis Bank will also charge Rs20 and taxes for financial transactions and Rs9.5 for non-financial ones.