Technology has failed to reduce banking transaction costs, says RBI
Moneylife Digital Team 09 September 2010

RBI’s deputy governor Dr KC Chakrabarty has said that the industry needs to make a promise to the customer that banking transactions will become cheaper, faster and easier over the next decade

Banks are increasingly adopting new technologies, however, these have failed to bring down transaction costs, said Reserve Bank of India (RBI) deputy governor Dr KC Chakrabarty while speaking at a banking conference organised by the Indian Banks' Association and the Federation of Indian Chambers of Commerce and Industry (FICCI) in Mumbai. Dr Chakrabarty said that the net interest margin of banks has not reduced much especially when the structure of the business has not changed.

He said technology must enable customer facilitation in terms of cost, time and convenience and it should be dovetailed to customer needs and expectations.

About two years ago, the RBI allowed 18 banks, including State Bank of India, ICICI Bank, Axis Bank, HDFC Bank and Bank of India to offer mobile banking services across the country.

However, the volume growth in mobile banking is still very low at 400,000 transactions per month, out of which one bank's contribution is more than 300,000 transactions alone. Some banks have as low as two mobile banking transactions per month, Dr Chakrabarty said.

He said that the intermediation costs of banks in India still tend to be higher than those in developed banking markets, which signals that there is a need to increase the penetration and bring down the cost per transaction.

At the same time, we need to develop effective and robust delivery models that can reach each customer irrespective of his/her location across the country, he added.

Although the discussion was focussed on transactions in the next decade, almost all panellists except Dewang Neralla, director, Atom Technologies and co-founder and director, Financial Technologies Ltd, failed to address the issue of secure and safe transactions.

Mr Neralla said going forward, we need to provide safe and secure environment to end users, which can increase the transaction volume and ultimately can bring down the cost as well. He gave an example of Tata Sky's subscription service activation/recharging through mobiles. He said more than 10% of Tata Sky's total volumes are sold through this model at a much cheaper cost. This shows that if you can create a safe and secure model, customers do not hesitate to adopt it, Mr Neralla added.

Later, commenting on the recent crash of HDFC Bank's Net banking facility, Dr Chakrabarty said that each bank has certified that they do have robust backup systems. However, customers are often left in the lurch due to technical issues at the bank's end.

9 years ago
Most certainly, the feedback having come from none else than the key person, second in hierarchy, at the helm of affairs in the RBI itself, can by no stretch of imagination, be rightly/sanely brushed aside, or ridiculed, even impudently, as single -track minded or motivated by a double-standard. On the contrary, every single concern of his, well voiced, ought to be a given serious consideration at closest quarters; and effective remedial measures be taken on a war footing.
In relation to none of the essential activities, which banks as service providers are engaged in, for the ultimate benefit of, besides its investing or borrowing customers, the society as a whole, one such measure requiring to be given the topmost priority is this: As commonly agreed, any 'discretion' vested in anyone, right from the top brass, has undeniably the potential to be misused. With that in sharp focus, the factor of 'discretion', of any kind, needs to be eliminated, and should have no role to play. Instead, must be strictly governed by per-determined ideal standards, as laid down by the Regulator , and made applicable uniformly to all its constituents, etc. in any decision-making- be it for lending or any other.
In fact, there are any number of rules to be found in the Code of Ethics And Conduct formulated, and periodically updated, but there is, as experience has shown, a cavernous gap between what the rules book says, and its actual, factual observance, in practice, even on a day to day basis.
May be, competent experts in banking, known for their integrity, might have specific suggestions to usefully offer for bringing about a marked improvement, for the well being of one and all devoutly concerned, even remotely.
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