People seem shocked at the disclosure that only the public sector banks (PSBs) had collected Rs10,000 crore as penalty from customers for not maintaining a minimum balance in their savings account and for cash withdrawals beyond three times. This data would not have come into public domain but for a question asked in the Parliament.
Actually, the sum reported to Parliament is only a fraction of what banks are recovering from hapless customers. The real sum could at 10 times higher if you include excessive interest, collection by private banks and various usurious charges. Small sums from individual customers aggregate to a huge amount that is going straight to banks’ bottom-line, unnoticed, while they lose thousands of crores of rupees in poor and corrupt lending to large businesses.
In fact, the amount collected from customers may even equal the Rs100,000 crore of bad loans written off by 10 PSBs in 2017-18 (data from rating agency ICRA).The finance minister defends these write-offs as a ‘tax saving’ device and recovery efforts will continue (but won’t fetch more than 20% of the write-off, even after the bankruptcy law).
The government and the Reserve Bank of India (RBI) are silent about extortive charges collected from ordinary depositors because disaggregated customers rarely fight back and politicians only respond to issues that affect their core vote bank.
Many customers are also led to believe that banks are performing some kind of social service in paying them an interest on their savings when, in fact, bankers know that CASA (current accounts and savings accounts) earns the maximum revenue.
A former central banker tells us that the profits from CASA would be blindingly clear if RBI insisted on a clear costing of banking services. It will also force bank managements to be more accountable to customers.
Let us look at how and why we estimate the loot from bank customers to be so high.
Many of you are aware of Moneylife Foundation’s relentless campaign and public interest litigation (PIL) in the Supreme Court against banks’ refusal to pass on lower interest rates to borrowers on a floating rate agreement. In the PIL, Shriniwas Marathe, a retired banker, has estimated that over-charging would be approximately Rs43,000 crore for every 1% benefit denied to the borrowers (assuming that an estimated 60% total loans of the entire banking industry, which are on floating rate basis, are denied the benefits of lower interest rate only from 1 April 2016. Over the previous 20 years, banks have been overcharging customers, by not reducing interest rates.
Following this PIL
and an order of the Supreme Court, RBI has finally asked all banks to adopt a new external benchmark for providing loans for home, auto and micro and small enterprises (MSME) from 1 April 2019. RBI has also asked banks to keep fixed their spread over the benchmark rate throughout the tenure of the loan. This may, finally, stop borrowers from being cheated by banks in future. But let’s add this conservative estimate of Rs43,000 crore to the money ripped off by banks from borrowers with the tacit consent of RBI and government.
Apart from the Rs10,000 crore that PSBs had collected as penalties over the past three years, penalties levied by private banks would be no less than Rs7,000 crore, given their market share and higher charges. Further, 21 PSBs have already collected Rs1,000 crore in the first six months of 2018-19 for not maintaining minimum balances and Rs850 crore for more than three withdrawals from ATMs each month.
All such charges are picked from 97 crore (970 million) savings account-holders. Remember, there are no such charges on 53.30 crore (533 million) Jan dhan/basic saving accounts at the lower end and on ‘privileged’ account-holders at the upper end—these charges are extorted from middle-income persons, students and retirees, who need to withdraw almost all their money every month for living expenses.
Depositors are being charged for almost every banking service, such as cash transaction at branches, ATM transactions, change in ATM pin code, change of mobile number or address, SMS alerts, changes in KYC-related documents, etc.
Charges for attestation of signatures, bank statements and demand draft charges have soared. RBI deputy governor S SMundra
(now retired) warned banks of action for levying ‘excessive charges’ for various services in 2016, but did nothing. The charges have only soared.
A customer who is the victim of a bounced cheque, often, ends up being charged both, by his bank as well as the issuing bank, for no fault of his. Banks impose such arbitrary charges because individuals have no time to fight a long battle to recover a few hundred rupees ripped off from their accounts.
It will probably require another question asked in Parliament for us to find out how many thousand crore rupees are collected by banks through the steady increase in various service charges/ penalties, over the years.
ATMs are another source of fleecing banks customers. Banks are charging for ATM transactions (beyond a minimum threshold) on the plea that it costs them Rs15 per transaction. However, they accept no responsibility for ATMs that do not work, run out of cash, or cap withdrawals (especially on holidays) forcing customers to make repeated transactions.
There is no attempt to net off the money saved by banks when customers transact at an ATM instead of coming to a branch, or give credit for the fact that an ATM allows banks to increase business and profits by taking a whole bunch of services to self-kiosks (bill payments, change of bank details, printing of statements, etc).
Many ATMs of PSBs don't even work. In September 2014, Moneylife Foundation sent two memorandums to then RBI governor, Dr Raghuram Rajan, on “Usage of ATMs-Rationalisation of number of free transactions
”. In November 2014, RBI responded saying that it was ‘pursuing the matter
’ with the Indian Banks Association (IBA) to enable customers to report non-working ATMs. Nothing has changed at the end of 2018.
In May 2016, an RBI deputy governor admitted that RBI teams had surveyed 4,000 ATMs across geographies and bank categories and found that one-third of them weren’t working. Yet, no action. Finally, frustrated customers have managed to get State Bank of India penalised by moving the consumer courts
The Confederation of ATM Industry (CATMI), lobbying against RBI’s new regulatory requirements, has created a scare scenario over costs and compliances. In a statement it says, “Half the ATMs in India will be rendered commercially unviable… potentially leading to cash shortage and long queues, similar to the days following demonetisation in 2016.” The statement says “Millions of beneficiaries under the government’s Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme, who withdraw subsidies in the form of cash through ATMs, may find their neighbourhood ATM shut.”
The fact that ATM service-providers need to whip up such fear indicates that neither RBI, which framed new regulations, nor the finance ministry, that it is squabbling with over its powers, is accessible either to the service industry or people who will be affected by its policy decisions.
As bank customers, we have several questions about CATMI’s threat that 15,000 non-bank ATMs and 100,000 off-site ATMs may be shut down (out of India’s total ATM population of 221,492 ) by September 2019. How do banks decide the location and cost of ATM? If ATMs are inter-operable, why doesn’t IBA, the lobbying organisation for banks, ensure that they pool and optimise resources?
We have seen ATMs of all banks clustered in commercially important locations with high visibility, because they are also a branding and marketing tool. So why aren’t some operational costs apportioned to marketing and publicity? What will it take to get RBI to follow USO (universal service obligation) principles and ensure that there is a decent spread of ATMs available at rural and semi-urban areas, especially where non-paying JanDhan
account-holders need them? Otherwise, financial inclusion in the form of 33.61 core (336.1 million) JanDhan
accounts opened is meaningless. And, we, the middle class customers will continue to be looted to make up for the bad loans written off by banks.