A new study by IIT Bombay has revealed that several banks, including State Bank of India (SBI), have been imposing excessive service charges on zero-balance or basic savings bank deposit accounts (BSBDA). In fact, SBI alone collected almost Rs300 crore over the past five years from these zero-balance or basic accounts.
The study observed that the SBI’s decision to levy a charge of Rs17.70 for every debit transaction beyond four by the BSBDA account-holders cannot be considered as 'reasonable.' It is usually the poorer people and students who are fleeced and this continues even now in a year-long COVID situation when things have been rough and the poorer sections have borne the worst brunt of lock-downs and restrictions.
The study points out that the Reserve Bank of India's (RBI)'s casual attitude in supervising its own regulations encouraged banks to apply unreasonable charges beyond four debits a month. While on the eone hand, digital banking and financial inclusion are being promoted and highly talked about, it is unfortunate to see that RBI has allowed such blatant victimisation of these very BSBDA customers (for whom financial inclusion is being widely promoted), despite being morally and legally obliged to protect them.
The study by IIT Bombay professor Ashish Das highlighted that the imposition of service charges resulted in undue collections of over Rs300 crore from among nearly 12 million BSBDA holders of SBI during 2015-2020.
In fact, in the two-year period between 2018-19 and 2019-20, SBI collected Rs72 crore and Rs158 crore, respectively, as charges from these poor account-holders.
India’s second-largest public sector lender Punjab National Bank, which has 3.9 million BSBD accounts, collected Rs9.9 crore during the five-year period 2015-2020.
The study noted “There had been systematic breach in the RBI regulations on BSBDAs by few banks, most notably by the SBI that hosts the maximum number of BSBDAs, when it charged at a rate of Rs17.70 for every debit transaction (even via digital means) beyond four a month.”
In 2012-2013, under the garb of financial inclusion drive of the country, RBI had introduced the BSBD accounts and, subsequently, in August 2014, the Union government introduced Pradhan Mantri JanDhan Yojana (PMJDY).
The PMJDY swept the county in facilitating the opening of BSBD accounts by unbanked, under-banked members of households and among the poorer sections of society. The beauty of such accounts was that it envisaged BSBD account-holders of not being charged for the basic banking services that gets offered by banks.
Levying of charges on BSBDA is guided by September 2013 RBI guidelines. As per the direction, these account-holders are allowed more than four withdrawals’ in a month, at the bank’s discretion provided the bank does not charge for the same.
This means, banks are required to provide a minimum of four free debit transactions per month and for 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. As per the regulation, 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.
But, inspite of this direction, SBI (along with several other banks) has been charging the BSBDA-holders for every debit transaction beyond four transactions a month and the charges are as high as Rs17.70 even for digital transactions like National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS), Unified Payment Interface (UPI) UPI, Bharat Interface for Money (BHIM) -UPI and debit cards for merchant payments.
“While defining the features of a BSBDA, the regulatory requirements made it amply clear that in addition to mandatory free banking services (that included four withdrawals per month), as long as the savings deposit account is a BSBDA, banks cannot impose any charge even for value-added banking services that a bank may like to offer at their discretion,” the study said.
RBI considers a withdrawal, beyond four a month, as a value-added service (VAS).
“We assess the dereliction in SBI’s duty towards the PMJDY when the BSBDA users were unduly (and against the extant regulations) forced to part with such high charges for their day-to-day (non-cash) digital debit transactions that the bank allowed in a BSBDA,” the report added.
“On the one hand, the country strongly promoted digital means of payments, while on the other hand, SBI discouraged these very people, to transact digitally for their day-to-day expenditures, by charging an exploitative Rs17.70 per digital transaction. This dwarfed the spirit of financial inclusion,” the study gravely points out.
The study adds “Although not by intent but in practice RBI has allowed victimisation of these BSBDA customers despite being duty-bound to protect them. Two of its specialised departments the Consumer Education and Protection Department’ and the Financial Inclusion and Development Department’ allowed this to continue over years even though RBI regulations for ensuring reasonableness of service charges were in place.”
Although RBI was approached first when SBI charged for every UPI and BHIM-UPI and Rupay digital payments, it remained silent. It was only when the government was subsequently approached, that it came forward to instruct the banks on 30 August 2020, to retrospectively (since 1 January 2020) return the money to the depositors or face penal consequences.
However, despite this small relief, RBI still needs to ensure compliance with its own regulations when SBI still considers itself compliant while charging as high as Rs17.70 for every digital debit transaction, through means other than UPI/BHIM-UPI and Rupay-digital, carried out since January 2020.
The research study has checked on the trend of BSBD accounts opened and the flips in the regulation that have led not only to chaos among banks but also the banks’ dereliction in deviation from extant regulations. The study has focused on one public sector bank to show the impact of such deviations onto over 12 crore BSBD/PMJDY account users of SBI, when the bank charged exorbitant fees for day-to-day non-cash transactions through digital means.