Banks Have Extorted over Rs50,000 Crore from Customers in Dubious Levies & Charges
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. 
Like this story? Get our top stories by email.

User

COMMENTS

Raghav

6 months ago

Kudos to you for raising such issues.

I have a simple idea to defeat mess, if we can do this as a neat first step and it would be very effective. I hope this idea reaches you and many of your readers here:

Idea is to essentially, force the banks to send "bills" of any fees to their customers, instead of taking them by dipping in the accounts themselves.

Technically, this whole thing has become an issue with banks because because depositors wear 2 hats: a LENDER (ie a SUPPLIER of the business) and USER of banking services (ie a CUSTOMER of the same business).

Your "lender" accounts should be technically out of reach of the banks for taking any fees, which you incur as "customers", which should need a separate customer agreement.

Generally, such short-circuiting is not agreed to by suppliers in any other business.

Just like your cell phone operators send the customers any bills, force banks to send "bills" and just like any other bill, customers should be able to pay any "fees" from "any other account they own", or charge it to credit cards, or pay by cash.

REPLY

Pradeep Kumar MS

In Reply to Raghav 6 months ago

Wonderful idea sir. I also was searching for a solution.
I wonder where Moneylife's petition standsstands now?

K V RAO

In Reply to Raghav 6 months ago

You are talking of separate agreement. At the time of opening the account and completing KYC formalities, aspects of recovery of charges are made known to the customer. No customer becomes aware of different clauses of agreement due to its lengthy nature. The trout with all of issue is we just sign on dotted lines when the documents are lengthy. Having this, I wish to congratulate you for your creative solution to the issue.

Gurudutt Mundkur

6 months ago

Were the rules made late with retrospective effect?
Were they not made known to the customers?
Do I have to be told repeatedly that I cannot drive on the right side of the road; that I should buy a ticket when traveling by train?
Do I need a policeman to tell me to wear a helmet when riding a two-wheeler or to wear the seat-belt when driving a car?

K V RAO

6 months ago

The write-up talks about clear costing of bank's services. Only an expert who excels in theory but has zero experience in banking operations will make such a statement. Even foreign banks (even small unit banks in US have not done this) have not been able to do this although the suggestion meets the tests of system excellence. As we have adopted branch banking system, it is a mammoth task. Of course there is no limit to excellence.
(2) 1% benefit denied due to floating rate is not an issue to 75% of customers. Customers grouses pertain to delay in credit sanctions and wasteful paper exercises. And genuine business segment is deprived of credit. This issue needs to be addressed and not credit costs.

(3)Charges for not maintaining minimum balances and more than the stipulated number of ATM transaction: Banks have every right to recover these charges because they are not temples. They are commercial organisations. Further this infyis made known to customers at the time of opening the account. Do you object to high food charges once you are notified about them in the menu card?

(4)Charges for ATM PIN, change of mobile number/address,SMS costs, changes in KYC related documents. Charges for attestation of signatures, bank statements, demand draft charges.
What has been said under (3) applies. Further please appreciate that human labour and expertise is involved and so these services need to be charged.

(5)A customer of a bounced cheque being charged both by his bank and the issuing bank is INCORRECT. How can the issuing bank charge him when he has account with collecting bank? But if you say both collecting bank and paying bank charge to their respective customers, you are right.

(6)As for your complaint that banks save money when customers do certain transactions at Kiosks, although it sounds true, on a deeper analysis, it doesn't stand the test of sound economics. First banks have incurred huge capital expenditure in setting up such kiosks. Secondly, such savings arise out of business strategies. Eventually if there are are substantial savings, it will benefit customers and stakeholders.

REPLY

Sucheta Dalal

In Reply to K V RAO 6 months ago

As regards your statement that customers cannot be charged twice for bounced cheques -- you may have your arguments, but it is happening. Why do banks do it , when it is patently unfair and probably illegal ? Well, simply because they can. They can debit the account and wait for the person to fight - not all notice or fight back. when they do, the bank could (now will) reverse charges. Is it happening. yes, it is. just because you have not had a bad experience, do not speak for all bank customers- we run an NGO precisely to help people in situations like this.

K V RAO

In Reply to Sucheta Dalal 6 months ago

My point is how can the beneficiary of a cheque -( his account is with collecting bank and not paying bank) bear two way charges? Technically impossible!

Sucheta Dalal

In Reply to K V RAO 6 months ago

Thanks for your sweeping and mistaken, or rather foolish assumption about my ignorance. The fact that RBI had a department for costing which was abruptly shut down was told to us by someone with over 30 years of banking experience, enormous knowledge and academic qualifications in statistics and compiling costs for banks and who has been at the highest level in the RBI. But sure, you can make arguments about why it cannot be done.
Nobody said it was a simple task, but it is not impossible if RBI wants to do it.

Strike paralyses banking operations in Mumbai
All banking operations were paralysed in the country's financial capital on Wednesday, following a strike by various banking employees and officers unions, officials said here.
 
Bank staffers responded enthusiastically to the nationwide strike call for various demands issued by the United Forum of Bank Unions (UBFU). The UBFU claimed "100 per cent participation" by the employees and officers from all public sector, old generation private sector and some foreign banks in the strike.
 
In the afternoon, over 5,000 bank staffers staged a rally at Azad Maidan and raised slogans opposing the proposed mergers of Bank Of Baroda, Dena Bank and Vijaya Bank by the government.
 
"Each public sector bank has its own history, geography and culture in the background. If the government bulldozes the decision of the merger, it will put their customers to great hardships," said UBFU leaders who addressed the rally.
 
They criticised the proposed mergers and urged the government to focus on the recovery of huge non-performing assets from big corporates to save the (banking) industry from collapsing instead of resorting to such mergers.
 
Top banking industry leaders heading different employees and officers unions like Narendra Kothiwala, Subhas Sawant, Mathaprasad Tripathi, K.K. Nair, Devidas Tuljapurkar, Yogesh Bidkar and others addressed the gathering, and warned of intensification of the agitation if the government remains adamant on its stance.
 
Tuljapurkar added that all union representatives will hold a meeting shortly to decide the future course of action.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

 

User

SBI Discontinues Aadhaar-based Payment System After SC Verdict, Reveals RTI
State Bank of India (SBI), the country's largest lender, has decided to discontinue Aadhaar-based payment system (AEPS) and had informed its decision to the UIDAI, reveals a reply received under Right to Information (RTI) Act.
 
The reply received by Srinivas Kodali, an activist, has details of the opinion of SBI's law department about using AEPS by account-holders. It says, "...in terms of the Supreme Court judgement, withdrawal of money by a beneficiary through Aadhaar authentication or AEPS is to be made or can be made permissible only for the amount of actual monetary subsidy or benefit received by the beneficiary (in his bank account) and not for using the said account (which may also have credits being credited into the same from other sources along with the government subsidy) for making withdrawal of other amounts. However, there being a practical difficulty, where beneficiary of direct benefit transfer (DBT) scheme, having other credits being credited in to his account, may also end up using AEPS system for withdrawing an amount much higher than the amount what was credited in his account as government subsidy. It may lead to stepping over the mandate of the judgement, which restricts the use of AEPS transactions only to the extent of DBT amount."
 
"Now, our competent authority has approved discontinuance of AEPS system from 1 December 2018, to ensure that the bank is not on the wrong side of the Supreme Court judgement in terms of compliance," the letter says.
 
 
 
 
Interestingly, while SBI denied sharing this letter, Mr Kodali was able to obtain it from Unique Identification Authority of India (UIDAI) under the RTI Act. SK Thakur, central public information officer (CPIO) of SBI, told Mr Kodali, that "The information sought by you is of commercial confidence of the bank and hence exempted from disclosure under section 8(1)(d) of the RTI Act." 
 
 
This incident also how public authorities try to hide information under various excuses under the RTI Act. 
 
Earlier in August this year, the State-run lender had disabled pay to Aadhaar functionality from its Bharat interface for money application (BHIM) SBI Pay app citing regulatory guidelines. (Read: Aadhaar: SBI Disables ‘Pay to Aadhaar’ Functionality from Its BHIM UPI App, Others Not Bothered)
 
In fact, National Payments Corp of India (NPCI), which developed and promotes unified payments interface (UPI) and (BHIM), itself had asked banks to discontinue Aadhaar-based payments through the UPI and Immediate Payment System (IMPS) channels. Pay to Aadhaar is an additional functionality in UPI and IMPS where the payer can transfer funds to the beneficiary using an Aadhaar number.
 
"Aadhaar number is a sensitive information and the revised framework about its usage in the payment landscape is still evolving. With this background, we proposed removal of ‘Pay to Aadhaar’ functionality in both UPI and IMPS before the steering committee (meeting held on 5 July 2018). The proposal of removing the Aadhaar number functionality was approved by the steering committee,” NPCI had said in a circular issued on 17 July 2018. 
 
Later in September 2018, the Supreme Court declared Section 57 of the Aadhaar Act as unconstitutional. This means bank account-holders, e-wallet or mobile wallet users and mobile subscribers are no longer required to use their Aadhaar number.
 

 

Like this story? Get our top stories by email.

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

online financial advisory
Pathbreakers
Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
online financia advisory
The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Online Magazine
Fiercely independent and pro-consumer information on personal finance
financial magazines online
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
financial magazines in india
MAS: Complete Online Financial Advisory
(Includes Moneylife Online Magazine)