Troubled Banks, Beleaguered Customers

How banks are picking our pockets with unreasonable charges to cover up for their inefficiencies in business lending


It required a sharp prod by the governor Reserve Bank of India (RBI), Dr Raghuram Rajan, for Indian banks to cut their base lending rates by a token 15 to 25 basis points on 8th April. But things are rather grim at public sector banks (PSBs) and it remains to be seen how many borrowers will really get a lower rate. The government will have to pump in a massive Rs2.4 lakh crore of taxpayers’ money into recapitalising PSBs to ensure that they meet the Basel-III norms by 2018. 
Of this, provision for only Rs7,900 crore has been made in the Union Budget and the finance minister has said that PSBs may also be allowed to divest government holding down to 52%. Can this happen when some of the biggest PSBs have remained headless for nearly a year after the BJP-led government took charge? The government is crowing about the success of the Rural Electrification Corporation issue on 8th April, but will sensible retail investors put money into badly managed PSBs groaning under the burden of bad loans? At best, there could be a pseudo-divestment where a government insurer is forced to acquire poor quality PSB equity, creating another problem for the future.
There is silent anger and great demoralisation among senior bankers over recent changes in the eligibility criteria and flexi-pay packages that are being offered to direct recruits the government is planning to induct at the top. The need for such hiring, too, has come about because of a government-created crisis with a ban on recruitment imposed in 1987. A whole swathe of senior bankers (chief general managers and executive directors) is set to retire shortly. However, thanks to the change in eligibility criteria, which requires three years of board-level experience, bankers with over three decades of PSB experience, are likely to be disqualified from the top jobs of executive directors and managing directors. 
Another point of anger is the vast disparity in salaries at the top level, between PSBs and private banks. While all PSB heads have been badly tarnished by the arrest of the Syndicate Bank chairman, senior bankers openly say that if the government wants to end corruption, it will have to do something about salaries. One banker had a lot of admiration for State Bank of India’s (SBI’s) chairman Arundhati Bhattacharya, who reportedly raised the compensation issue quite bluntly at Narendra Modi’s Gyan Sangam. It is hard to believe that there will be a significant push to reduce bad loans if this level of discontent among bankers, and apathy in the finance ministry, continues. 
Does this affect ordinary consumers? Yes; in multiple ways. First, most of us, as taxpayers, bear the brunt of repeated recapitalisation of banks by the exchequer. Secondly, banks have discovered that it is extremely easy to pick the pockets of depositors and make them pay for a variety of basic services, because they are too disorganised to pose a challenge. 
Consider this. Even after the recent reduction, the base lending rate remains above 9.9%, while savings bank interest in most banks (barring two) is 4%. This spread of 5% is probably the highest in the world. Yet, the cartel of banks, led by the Indian Banks Association (IBA) will have us believe that they have no option but to charge consumers for a variety of services that will be more than amply covered by this huge spread that banks earn on our savings accounts. We have now become accustomed to paying for mobile alerts which were originally introduced as a free security measure. The two challenges to the decision to charge for ATM transactions beyond a base level are languishing in the Delhi and Madurai high courts. 
Meanwhile, banks are eliminating the convenience of their massive investment in core banking solutions (which promised anytime, anywhere banking) by dreaming up new charges. A senior citizen says he was levied an ‘intercity charge’ of Rs50 for depositing cash in his own bank account in Bengaluru (not his home branch). A Moneylife reader was charged a fee to deposit cash in his own account. Reversing these charges requires a sustained battle, so most depositors simply give up. 
If this is part of RBI’s avowed policy to discourage cash transactions, surely it must explain why it is silent about ‘convenience charges’ claimed from consumers on online purchase of movie tickets, airline tickets, etc?  Questions from consumer organisations also fall on deaf ears. Our surmise is that the government and RBI are fully aware that customers are being fleeced; but, since they consider the 350 million Indians who own a bank account as part of a ‘creamy layer’ (a central bankers’ term) of society, their complaints are irrelevant when faulty government policies have landed bankers in a far bigger mess. 
Mahesh S Bhatt
8 years ago
Aap ke kasto se jinhe hum marte hain angre log use Customer kehte hain.

Its simple Human philosophy cover your inefficiencies blame the lower rungs/Customers.

Hidden facts are there are Political/Business interests playing in shadows which is not coming out.

That's the root of problems.Sahara/Kingfisher/Satyam are some examples.

Globally Americans allowed Subprime.Printed $$,Now Euros/Japanese Bond money/Chinese Yuan manipulations/super super easy money policies has & THRUSTING World to economic chaos larger than 1930's Great Depression.

Banks/Politicians/Business & also Common Man who expands /pays more than realistic prive /Value for goods & services.

Srinivasarao Ravindranath
8 years ago
Sucheta ji, I have been your admirer on your bold write ups. But I am disappointed, when you [ I hope inadvertently] mention that banks have 5% margin, taking Savings Bank interest payment is the cost of funds for the bank! Come on ma'am. I sure, you know it is not.
Sucheta Dalal
Replied to Srinivasarao Ravindranath comment 8 years ago

Thank you for your kind words and sorry about your disappointment.

I am not sure how you say that savings bank account holders (as a category -- not the entire bank's various accounts) are indeed paying to keep bank bottomlines healthy.

What is wrong in saying that when banks enjoy a huge spread on savings accounts, they ought not to charge for trivial services like withdrawing funds from your own account through an ATM or for text messages?
Srinivasarao Ravindranath
Replied to Srinivasarao Ravindranath comment 8 years ago
Sucheta ji, I have been your admirer on your bold write ups. But I am disappointed, when you [ I hope inadvertently] mention that banks have 5% margin, taking Savings Bank interest payment as the cost of funds for the banks! Come on ma'am. I am sure, you know it is not.
8 years ago
Equally, one might say, troubled State, beleaguered citizens. And for the very same reasons. Incompetence, lack of integrity, profligacy, lack of accountability, insouciance on the part of almost everybody on the Public Pay Roll.
Anand Vaidya
8 years ago
Banks should not levy charges for NEFT below certain limit if the govt wishes to reduce cash transactions. Most banks have NO FREE NEFT xfers. Rare exceptions like IDBI and IOB allow free NEFT transfers and free SMS alerts.

ICICI, in my experience is the worst when it comes to charges. They are charging me Rs60 per year for SMS. They send hardly 10 SMS a year. Rs 6/SMS? Great!
8 years ago
All the service charges discussed herein have now become a way of life. Now get ready for such stiff charges for a simple Bank account as Rs. 25000 minimum monthly balance ,if goes below that then pay Rs. 250 plus S tax for that month.
I suggest, all should come out of this "creamy layer" and just open an account as SMALL SAVINGS ACCOUNT" OR under "PRADHAN MANTRI JAN DHAN YOJNA" to get exempted from this fleecing by banks.
As far as Service charge for paying cash in own savings account, a charge of Rs. 250 plus Tax ( For a sum of Rs. 25K ) has been there since 2008, and its REASONABLENESS has never been decided by any monitoring Authority. Rather they refuse to do so and the issue remains buried with the Indian Banks Association.
MG Warrier
8 years ago
Like Indian Railways, Indian banking System is also surviving collapse and serving the customers not because of, but in spite of, the management. The credit should go to the majority of their employees who are loyal to the institutions they serve. No, I am not referring to the people who manage banks, when say ‘management’ . The reference is to the policies that guide them. The short-cut of launching new institutions to serve target clientele or ‘directing’ banks to earmark funds for priority sectors or neglected geographical areas alone will not yield results now. Many HR-related issues from recruitment and training, remuneration and incentives/disincentives, career progression, board and top level appointments, neglect of skill-development and opting outsourcing as a permanent solution for relationship problems between management and employees (list can be much larger) have contributed to the sagging employee morale which is affecting per employee productivity. And, this is behind the high Net Interest Margins banks are forced to retain. While such issues need be addressed by GOI and RBI, quick and transparent self-regulatory measures by bank managements alone will save the banks from being brought again under a regulated regime of interest rates and service charges.
8 years ago
Very true.. The latest is SMS alert charges and ATM charges.. A few years back,SBI was giving free ATM Card to everyone who opens a SB ac (like issuing RuPay Cards all PM Jan Dhan acs) and now they are levying these charges even on accounts where there is no transaction at all from the beginning except the system-generated half-yearly credit of interest.NO SMS alert was sent as there are no transactions and yet the charges are levied as SMS alert box was checked when the account was opened when it was free ! I wish Monelylife could do something to prevent this pilfering by Banks from hapless customers.
kapil bajaj
8 years ago
I got a debit-cum-ATM card issued recently on my savings bank account at an SBI branch in Bhopal. It didn't work from the start owing to what the branch manager later told me was a "technical problem".

Despite his assurance and a couple of telephonic conversations with the SBI official in charge of sorting out such issues, the branch manager couldn't get the problem" fixed for three days.

He then advised me to apply for a new pass-word and promised me that he'd reimburse the Rs 55 I'd be charged for the change.

I did that, finally getting the new pass-word in about a week's time and being able to use the ATM service.

Asked for the reimbursement I was promised, an official (a junior of the branch manager) told me: 'Kis baat ka refund? Isme hamaari kya galti hai?'

Put in English, he simply asked me to buzz off!
8 years ago
HDFC has suddenly increased my bank locker rent from 1500 to 6000. when checked they say that i should be glad they have not increased it in the last four years and it is still has a 50% discount since I am preferred customer.
B. Yerram Raju
8 years ago
Acknowledging a communication is basic to correspondence. The Banks - PSBs or Private sector Banks or foreign banks - charge by sending sMS acknowledging a standing instruction or a transaction. Internet banking - you have a dip of Rs.15 for every transaction and undisclosed cut with the corresponding sms on your mobile. After all sms is not free. The METRo ATMs allow only three transactions in a month for free: most ATMs of SBI at least put a slip mentioning that only Rs.500 and Rs.1000 can be drawn that too up to Rs.10000 or 15000. A customer is entitled to draw up to Rs.40000 from the ATM in need per day and you exhaust the limit of three drawals on a single day!
There are enhanced charges on the Safe Deposit lockers and with restraint on number of operations.
The charges debited are not advised and they debit annually the rentals. If a customer exits the facility in the middle of the year he will not be refunded the proportionate charges and the new customer is charged however for the vacated locker for the whole year.
There are as many as 19 hidden charges that our SBI Pensioners' Association brought to the notice of all pensioners that they should guard against. At several branches the customers wanting to draw against their card cannot draw because the related machines just do not function!! This is customer service. We also notice that even from the ATMs one gets counterfeit notes and the banks concerned refuses to receive a complaint on this count. The ATMs are outsourced and the banks do not take enough measures to operate them to the level of efficiency and security required but kick your account with charges.
Senior citizens do not have any special treatment at most branches and they get tired of standing in the queue for service. Loads of disservice and holes in the deposit accounts is the way banks serve their customers.
One more customer committee the RBI may venture but with no bank prepared to listen to the recommendations. Talwar committee and Damodaran Committee have made excellent recommendations only to ornate the cupboards of the RBI.
venkataraman k
8 years ago
i would like to remind the readers that earlier there was a move from ministry of finance to mandate the nationalised banks to charge customers ( particularly deposit holders) in line with HDFC bank and other private sector banks. This move to benefit HDFC bank and other banks. this move was thrashed. a move to shift deposits to private sector banks who are starved of funds and assets and liability mismatch. already SB account is [paid low interest and in addition charges like, not maintaining minimum balance, activating the dormant accounts, cash deposit charges, ATM charges alert charges, etc and total charges would come to RS.1000/- P.A. This revenue would subsidize the interest rate cut for corporate clients. efficiency is penalised for growing NPas. Funders are penalised for the rouge traders and selfish corparates,
venkataraman. k
Senior Citizen
8 years ago
Many Senior Citizens have kept their hard earned savings in PSBs deposits because we have no social security or Medicaids for Seniors. This money is earning far less interest than inflation and losing value fast and driving them to penury. Their hard earned savings are being pocketed by Mafia with political connections who have loaded PSBs with NPAs.
I hear even small fries are looting PSBs. For example Bank Insiders are making fake income tax returns and giving personal loans based on these bogus returns which is being invested in real estate. Government should be made the prime accused in this mass genocide of Senior Citizens Savings. The other area of loot is Insurance Sector.
Vishal Modi
8 years ago
In Italy, it seems one has to pay with a kidney to close an account!

Vaibhav Dhoka
8 years ago
I had same experience with Bank of Maharashtra I deposited Rs.30000 to know next day I was poorer by Rs.165.I immediately called RM and inquired and he told that I deposited in non home branch,on further query he accepted that same has not been put on notice as service charges and therefore reversed this charges and took note to put all circulars on notice board.Still customer fall prey and bank loot them.
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