While the Reserve Bank of India (RBI) has launched a SMS and advertisement campaign to promote no-frills accounts, it seems completely unaware of the harassment meted out to these customers by banks — either in the form of conversion to standard accounts or freezing their accounts after four transactions.
An academic study by Prof Dr Ashish Das, from Department of Mathematics at Indian Institute of Technology Bombay (IITB), has found that banks are quietly converting a no-fee basic savings bank deposit account (BSBDA) to a fee-based regular account with high minimum balance requirements or charging a fee, the moment such customer carries out fifth digital payment transaction in a month. In such scenario, the account remains converted as regular saving account making the customer liable to pay for several services besides keeping minimum balance amount in her account all the time.
According to the study, while India is working hard to bring about ease in digital transactions, State Bank of India (SBI) has debarred its 13 crore BSBDAs to carryout debit transacts more than four times in a month, even if it constitutes only digital transactions. Given that volumes of such accounts have been opened (under PMJDY) with an intention of financially including the excluded, such a scenario lacks the desired spirit of digital financial inclusion.
In addition, some banks adopted an ingenious, but faulty ways to overcome pains of BSBDA regulations. "HDFC Bank and Citibank, with a complete lack of spirit towards their BSBDA customers, have in a discretionary fashion thrust a responsibility onto the BSBDA holders of keeping track of how many debit transactions they are doing. These banks without explicit and voluntary consent of customers are unilaterally converting the BSBDA into a regular savings account, requiring high minimum balance, the moment a fifth debit transaction is done by the customer in a month. Thereafter these banks would start imposing fees as high as Rs600 every month for non-maintenance of minimum balance that the customer was not made aware of at the time of entering into a relationship with the bank. The customers have not been given an explicit option to bestow the responsibility onto the bank of not allowing the fifth debit transaction in a month if the bank cannot provide it for free. By carrying out a fifth debit transaction in a month and create a potential to earn a service charge of as high as Rs600 per month from such customers. Thus, a recurring charge gets built-in in the name of high minimum balance requirement of the converted account," the report says.
The Report also reveals dubious practices adopted by banks to take implicit consent instead of explicit consent from the basic saving bank deposit account holder. It says, "Under advice from RBI, banks have suddenly changed the rules of the game; with HDFC Bank and Axis Bank changing the rules as late as end-April 2018.6 Moreover, to their advantage and comfort, banks consider it sufficient to take only an implicit consent of converting a BSBDA to a regular account rather than explicit consent from BSBDA holders – the implicit consent is in the form of sending SMS, which may convey that the account has been used for a fifth debit in the month and that any further debit in the month would automatically convert the BSBDA to a regular account. Such an approach adopted by the banks is devoid of an explicit consent of the BSBDA holder to allow conversion."
All banks have their regular savings bank account product with certain minimum balance requirements failing which a fee is imposed. To overcome this requirement of minimum balance and in the interest of financial inclusion, RBI mandated that all banks offer BSBDA. However, during the past four years many banks faulted by imposing service charges to BSBDAs, in violation to the RBI‘s extant rules and regulations, Prof Das says in his the Report.
Prof Das says, "The disclosures of incorrect service charges for BSBDA on the banks' websites and imposition of the same to the customers persisted despite the regulator being aware of it. Apparently, the bank supervisor has faulted in clear understanding of the complex regulation and therefore in carrying out effective supervision. Issues of consumer education and consumer protection were also found wanting."
"By not ironing out the design issues, RBI has created irrational impediments in the financial inclusion drive of the country - whether in form of inhibiting digital payments or through promoting cash usage by disallowing banks to charge beyond a certain monthly quantum (in value terms) of cash deposits. RBI's tenacity to avoid addressing the same, or lack of zeal to examine and provide explanations, is detrimental to the interest of about 280 million active BSBDA customers and of the banks," he added.
He says, "Though these violations were detrimental to the vast number of BSBDA holders in direct monetary terms, neither did RBI supervise properly in stopping imposition of such charges by the banks, nor did other bodies, like the Banking Codes and Standards Board of India (BCSBI), independently worked towards protecting the depositors. To specifically mention, the Consumer Education and Protection Department (CEPD) of RBI, which has been vested with the responsibility to overlook on issues related to consumer education and protection, failed to be effective on this aspect though they had been aware of the same for quite some time now. Technically, Department of Banking Regulation (DBR) of RBI should have taken the lead to address the systemic issues, but they failed in coming out clean and clear."
However, Prof Das feels the regulation on BSBDA needs to be looked more holistically, upholding the law and ensuring that it does not encourage non-compliance over those banks that choose to be compliant, though at a cost to them. "For example, ICICI Bank on realising the correct definition of BSBDA reversed all charges retrospectively that were imposed on such accounts. Also, few banks, from the very beginning, imposed no fees on additional services that they provided under BSBDA," he added.
In August 2012, the Reserve Bank introduced BSBDA and advised banks to offer this account alongside other variants of savings bank accounts. BSBDAs were mandated by RBI to be considered as a normal banking service available to all.
After several queries from banks and account holders, the Reserve Bank in September 2013, clarified and to a great extent redefined, features of BSBDA through a list of frequently asked questions (FAQs). The minimum common facility in a BSBDA that is to be provided by banks to all their customers, without the requirement of any minimum balance and charges, was modified. Banks were required to provide a minimum of four free debit transactions per month. Also, for a BSBDA, the banks were encouraged to provide additional services so long as they are provided free.
If the bank allows the BSBDA holder to carry out more than four debit transactions per month as per its discretion, all those additional debit transactions necessarily have to be provided free of charge. The regulation says that any withdrawals from a BSBDA, after the mandated first four free withdrawals, cannot be considered a withdrawal from a BSBDA unless all such withdrawals that the bank allows are also provided free.
In other words, Prof Das says, this would mean that banks have to necessarily allow a threshold floor of four free debits in a month. Thereafter, if a bank does not want to allow for free-debits beyond four (or five or any number that the bank decides) through any specific mode of debit transaction, the bank has to disallow the debit transaction once such a threshold is reached. Under such a restricted scenario, if a customer so desires or her banking needs so warrant, she can always come forward and consciously decide to change her BSBDA to a regular savings account, which would attract, inter alia, fees for non-maintenance of a certain minimum balance in the account, he added.
State Bank of India- SBI, the country's largest lender had already implemented the same in June 2017, while Axis Bank has started it recently. The two banks have disallowed BSBDA holders' money to be made available on demand beyond four debits a month. Demand deposits contain the money consumers need for paying daily expenses. Debit-freezing the account for the month after four debits in the month amounts to asking such depositors to live a whole month with only four digital means of payment for making everyday purchases and bill payments using point of sales (POS), and BHIM.
Although RBI is credited for designing BSBDA, the Report says, even after passage of five years, BSBDAs did not get implemented in proper spirit. It says, "One of the reasons for this is the lack of a reasonable business model for banks serving such accounts where actual balances maintained could be low. The Government launched Pradhan Mantri Jan Dhan Yojana (PMJDY) on 28 August 2014, for extending formal financial services to the financially excluded population.
Notwithstanding the push by government's promotion of PMJDY since September 2014, which is essentially opening of BSBDAs, the other major reason for improper implementation of BSBDA has been the incapacity of the banks and the public to appreciate the true features of BSBDA. As a consequence, till date not only are many banks non-compliant in providing the appropriate services associated with a BSBDA, but the public at large have also been mis-educated by the banks."
BSBDA & PMJDY
As on date, about 54 crore BSBDAs have been opened through branches and Business Correspondent (BC) points, of which, more than half have been opened under PMJDY. It is noted that since the inception of the PMJDY, the thrust has been to open only BSBDAs under the Yojana, the report authored by Prof Das says.
PMJDY accounts are meant primarily for financial inclusion with a greater view to check the menace of banking untouchability for those who do not have the same resources and opportunities available to others. BSBDAs, on the other hand have a much broader perspective and can be opened by anyone - not only by certain types of individuals like poor and weaker sections of the population but also other sections of the population without any restrictions imposed on income. It is a basic banking account available to all customers.
Basic savings bank deposit account -BSBDA got the required push only after launch of PMJDY. In FY2013-14, the number of BSBDA holders were 24.3 crore, which jumped to 39.2 crore, mainly due to about 14.7 crore accounts opened under PMJDY. As on FY2016-17, there were 53.3 crore accounts under BSBDA and PMJDY together. PMJDY contributed 28.2 crore accounts with BSBDA remaining at 25.1 crore accounts during the year. Though public is less familiar with the nomenclature of BSBDAs, as of March 2017, of the 150.2 crore savings bank accounts opened, 53.3 crore were BSBDAs. This also means every third savings bank account (active or inactive) is basic savings bank deposit account- BSBDA.
Last year in June, Prof Das published similar report highlighting the need for Reserve Bank to concrete issues surrounding the provisioning of such accounts. "Of the 54 crore BSBDAs opened about 52% are active. Thus, these issues are not only hurting the vast population of about 28 crore active BSBDA holders but also the banks, who are having difficulty to meaningfully comply with RBI‘s equivocal but strong wordings in the regulation," the report had said.
The June 2017 Technical Report recommended RBI to plug the current rampant non-compliance of regulation related to opening of BSBDA, to reconsider its policy and modify its regulation, so as to allow retaining the account status as BSBDA while imposing reasonable charges beyond the mandated thresholds on cash transactions and certain value added services. The Report also asked RBI to direct banks to allow unlimited free electronic debits for purchase of goods and services through debit cards, and internet or mobile based digital payments at merchant establishments.
Besides the last year's report also recommended use of Depositor Education and Awareness Fund (DEAF) for running campaigns to educate public on the correct features of a BSBDA.
The Reserve Bank started airing new advertisement on BSBDA during the recently concluded Indian Premier League 2018 cricket matches. It also published advertisement in newspapers.
Prof Das says he visited one bank branch to enquire about opening a BSBD account for himself. “In first bank, the employee plainly refused to open the account. So in next bank, I told them about the advertisement in newspaper on BSBDA. The employee there told me since this advertisement is from RBI, I should go and open this account in Reserve Bank!”
Prof Das from IIT-Bombay feels the BSBDA product cannot or rather should not fluctuate between being a BSBDA and being converted to a non-BSBDA by imposition of a fee at the drop of hat and that too at bank's sole discretion, else we would not know how many BSBDAs are there in the country today.
Here are some interesting questions, he asks...
- Do the banks offer opening of a BSBDA as per the mandated definition and fee structure?
- Do the banks offer an exclusive BSBDA which would not impose any fee as per the mandated product design?
- Are the declared service charges for a BSBDA or the mechanism adopted to impose
- charges, as announced at the banks' website/branches, correct?
Prof Das says, "RBI‘s tenacity to avoid addressing the same, or lack of zeal to examine and provide explanations in this regard, is detrimental to the depositors and the banks even under Section 35A of the Banking Regulation Act, 1949."
Section 35A in BANKING REGULATION ACT, 1949
[35A Power of the Reserve Bank to give directions. —
(1) Where the Reserve Bank is satisfied that—
(a) in the [public interest]; or
[(aa) in the interest of banking policy; or]
(b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or
(c) to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.
(2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect.]
"In view of the vast number of active BSBDA holders, which is about 28 crore in number, and given that these account holders are usually the poor and gullible lot, RBI needs to take a conscious view in providing clear guidelines so as to allow the product to evolve in the hands of the banks, while simultaneously protecting the interest of the country‘s digital payments drive," Prof Das concludes.