Under RBI’s Lax Attitude, Banks Face No Consequences for Flouting Rules
Do banks charge for transactions through the Unified Payments Interface (UPI) after a certain number of debits, when they are supposed to be free? Anyone who has used the platform would answer with an unequivocal no, barring three—an IIT professor who researches banking issues, a former banker with a blog and India’s No.1 daily. This article in The Times of India said that certain banks had taken advantage of another rule of the Reserve Bank of India (RBI) to impose limits on the number of free debits in each account. It mentions two banks—Indian Overseas Banks and Canara Bank—as having set limits on free debit transactions. An ex-banker, S Mohan, alleges that banks levy an indirect charge on UPI transactions in a blog post. Both, the newspaper and the ex-banker, cite research by Ashish Das, a professor with the department of mathematics at IIT Mumbai, who has worked closely with consumer organisations and has engaged extensively with RBI.
Let’s unpack this story before we examine why banks flout rules with impunity. UPI is a runaway success story and has made waves globally. According to a report, 76% of young Indians use UPI even for tiny payments like buying a soft drink or a packet of biscuits with the result that UPI transactions have been surging,  in volume and value, every month. The finance ministry, RBI, the National Payments Corporation of India (NPCI), and the central board of direct taxes (CBDT) are all emphatic that UPI transactions are free, even as the value of transactions permitted on UPI has been hiked from Rs2,000 to Rs1 lakh.
Yet, it turns out that at least three public sector banks (PSBs) named above were levying charges, indirectly taking advantage of a rule that allowed them to charge beyond a certain number of free debits. They appear to have applied the rule permitting them to charge for ATM and cash withdrawals (beyond the three/four free transactions) to UPI transactions as well. On 30 August 2020, CBDT responded to complaints about such charges with an unequivocal circular to (https://incometaxindia.gov.in/communications/ circular/circular-16-2020.pdf) clarify that under Section 10A of the Payment and Settlement Systems Act, 2007, all electronic transactions will be free. CBDT said that any such charge would attract a penal provision and asked banks to refund all charges collected after 1 January 2020. Accordingly, on 15 April 2021, State Bank of India (SBI) said in a public statement that it had stopped collecting charges and had refunded over Rs90 crore collected on digital transactions since 1 January 2020 (see a screen shot of its statement below).
Prof Das obtained the exact amount refunded by SBI on UPI and Rupay debit cards by filing a Right to Information (RTI) application. But SBI was not alone. Eight large banks refunded money to customers after CBDT’s 2021 order. Prof Das and the blogger quoted above allege that these banks especially exploited customers and collected money from basic savings bank deposit accounts (BSBDA). They did this by clubbing cash withdrawals with electronic transactions and imposed a cap on debits, allowing them to levy an indirect charge on transactions. BSBDAs are zero-balance accounts which permit only four free debits every month, while the rest are charged.
Now, cut to October 2022, when the blogger alleged that banks continue to levy indirect charges on UPI payments. This is incorrect. If all banks were levying such charges, there would have been a public outcry. NPCI, which has built the UPI platform, immediately verified with the top-15 banks over the Diwali weekend and reiterated that there are no charges on UPI transactions. Since the media report mentioned IOB, the Bank clarified on twitter (https://twitter.com/IOBIndia/status/ 1587032857578721280?s=20&t=1beFOWk6Ke7OCOJfM3a) that it did not levy charges on UPI nor did it cap the number of transactions.
But Canara Bank remained a problem. On 1st November, Canara Bank had a curious tweet. It said, effective 1 October 2022, it levies no charges on UPI transactions for BSBDA customers. This means that the Bank has brazenly flouted the CBDT circular of January 2022, as well as the clarification of 30 August 2021, warning of penal consequences and had continued to levy charges, until last month. According to Prof Das, “the method adopted by Canara Bank to charge this Rs5 was by keeping track of the number of debit entries in excess of 4 in a month. The cumulative total of excess transactions, if say 9, is charged for; i.e., 45 + GST = Rs 47. Such a charge is calculated after midnight of 31st and posted for either 31st or 1st of next month.” This made the charges less obvious to the customer.
How do closely regulated banks brazenly flout or misinterpret orders/ directives from the regulator (RBI) and the government? Worse, why would they be allowed to exploit basic account-holders who are usually students and people in the lower income segment?
Regulatory Laxity
The answer is simple. RBI officers operate out of an ivory tower and have no urgency or accountability, when it comes to consumer issues. Its consumer education and protection department rarely engages with consumers or responds to them. This is the case even when Shaktikanta Das is the only governor since Dr YV Reddy who is willing to listen and is truly serious about customer issues. But there is little that a governor can do to push entrenched cadre officials to act quickly, resolve conflicts decisively or deal with grievances comprehensively and sympathetically. They refuse to issue standard operating procedures (SOPs) on a range of issues, allowing bankers to make arbitrary rules that harass hapless consumers.
Governor Das has, indeed, initiated a comprehensive exercise to improve customers’ grievance redress. He alluded to this at the annual conference of RBI ombudsmen when he expressed concern over rising customer grievances, despite efforts to resolve them. He said, “RBI ombudsmen and regulated entities (REs) must identify the root causes of persisting customer complaints and take necessary systemic measures to correct them.” But this can be a slow process.
The issue of UPI transactions being charged is also ‘under review’; but, as I have pointed out, the issue has already resolved itself, mainly due to CBDT, Mr Das and media exposure. One would say that the issue resolved itself with Canara Bank also falling in line since October 2022, without RBI having to lift a finger on behalf of consumers. Meanwhile, it has issued a discussion paper seeking views on levying charges for payment systems and, left to the regulator, this would have festered until it made up its mind about that issue.
I have pointed out in recent columns that RBI has no SOPs on responsibility and liability of lenders who lose original property documents in their custody forcing every victim to approach a consumer court for redress (Read: Lost Property Documents Permanently Damage Asset Values: Regulatory Solution Required for Fair Deal to Borrowers). RBI ombudsmen, ignorant about public liability insurance, rejected claims for compensation by a person injured in a bank branch; its customer services department will issue directives in this regard even though every bank has comprehensive liability cover to pay for such expenses (Read: Moneylife Impact: SBI Finally Pays Reimbursement of Medical Expenses to Customer Who Suffered Accident inside Branch Premises). We have no SOPs for transmission of funds to nominees of deceased account-holders or unclaimed deposits, even though consumer activists have been agitating the issue for a long time (Read: Use Global Practices To Reunite Unclaimed Financial Assets with Their Rightful Owners).
The fact that at least nine banks had been charging for UPI transactions demonstrates how banks are unconcerned about regulatory action on consumer issues. As recently as in August 2022, the finance ministry emphatically clarified that there was not plan to levy charges on UPI transactions. Yet, the government-owned Canara Bank ignored the ministry, RBI and the CBDT circular and continued to levy charges right until October 2022! This can only happen when banks know that there will be no serious consequences to duping customers.
Will this change? Not unless governor Das demonstrates that he is serious, by levying exemplary penalties on banks that harass customers by violating the spirit of its regulation. Otherwise, we will have public homilies and the promise of comprehensive reviews, without real grievance redress and accountability to customers.
10 months ago
Kudos to you Maam Sucheta !! Most of your suggestions for improving customer service in Banks have been accepted and recommended by Kunango Committee for implementation. On this occasion, may I request you to take up with RBI for refund of wrongly collected charges by Canara Bank for the period 1.1.2020 to 30.09.2020 (from BSBDA accounts)
1 year ago
great analysis by madam sucheta but looks like the banking fraternity are hand in gloves with the regulator and each pats each other back.
Nagarajan Ramachandran
1 year ago
Great analysis as usual Sucheta. However, we have to strike at the root of the problem. RBI is performing 3 roles rolled into one and if push comes to shove its mandate to protect banks and the banking system will take primacy over consumer issues. A separate CFPB similar to the US with a clear and sole mandate to serve consumers is the need of the hour. Leaving it to personal interest of the incumbent governor will not solve anything.
Kamal Garg
1 year ago
Not only that the concerning banks should be levied a penalty or a fine, but, also, the responsible officer including CMD/ED etc also must be personally and individually levied a fine for so brazenly flouting
RBI guidelines.
1 year ago
Many thanks for highlight the issue.

I have a problem with Axis Bank , they are charging me SMS alert charges which I did not opt for , inspite of repeated mails they have not reverse the charges,
Kindly guide me how to raise the issue with higher authority.
Replied to riteshcalcutta comment 1 year ago
Hi, You can approach Banking Ombudsman if you have not received any reply or unsatisfactory reply from the bank within 1 month. You may have to upload correspondence with the bank. Online portal for complaint is https://cms.rbi.org.in/rbi/vividflow/run/rbi#captchaAuthentication
1 year ago
RBI directed long time back that each bank branch hold fortnightly customer service meetings, maintain a record of attendance, grievances and suggestions aired and the solutions. I did not attend any such meeting for the last fifteen long years not just as a customer but also as a pensioner having reasonably reliable balance in deposits and with no car loans or housing loans. The article highlights very important aspect - RBI lax on its own rules. I must say that during the last few months, accountability for laxity in customer services is getting fixed. The problem is the increase in number of complaints due to system lapses. System does not update even branch updates of KYC. Some staff at the counters are in tears!! RBI should restore branch inspections - particularly select retail banking branches in Metro, Urban and Semi-urban in higher percentage and rural branches at lower percentage. Randomisation should be done on the basis of RBI Banking Ombudsman and those in the media like Money Life and Social media.
1 year ago
RBI laxity and Banks flouring rules? Par for the course. Since Nehru, Patel, Ambedkar et al continued the British Empire with changes in symbols and the skin colour of the tyrants in 1949, anybody vested with authority by the State has been an East India Company Man, empowered to loot and plunder and flout rules and laws with impunity. If Nehru turned India into a command economy flouting the Constitution, such as it was, Indira Gandhi turned Banks into Government (loot and plunder) enterprises. In India, "Governance" is the Quota (Reservations and License) and Corruption (Extortion and Percentage) Raj that undermines the Constitution, such as it is since 1949 and has always been about stealing from some for the benefit of others on the basis of caste, tribe, religion, gender, geography, language, and proximity to power. Inequality under law is the leit motif of the Constitution, rendered so by Ambedkar at Nehru's behest with the infamous and prototypical 9th Schedule (of the much plagiarized and palimpsest of a Constitution), which expanded into Indian Governance.
1 year ago
Yes Mr.Ashok. u r right. Now let us wait and watch whether the regulator does something worthwhile !!
1 year ago
Good information.RBI need to be more proactive and ask banks to follow the guidelines set by them otherwise pay the penalty and also to credit the charges levied for UPI transaction to the account of the person who has transaction and give a stern warning.
Replied to r_ashok41 comment 1 year ago
Difficult and awkward, since the Bank may have kept RBI informed of they indirectly charging for UPI, and RBI in return said ok. So, now how and who should be made liable?
1 year ago
Excellent article and analysis of the unethical practices and violations indulged in by banks. I retired from Syndicate Bank in July 2019 and the Bank was merged with Canara Bank in April 2020. UPI transactions were free in Syndicate Bank. But Canara Bank after one year in 2021 they charged for IMPS transactions done through mobile banking retrospectively without any notice. Complaints through email didn't evoke any response but invited the wrath of the bank because I was ex-staff. Despite reminders no reply to the complaint. Though the amount was small as a principle I had raised the complaint. Another unethical practice was the bank had made IMPS as default option for sending money through mobile banking though through NEFT it was free. After they charged me i used to change the option to NEFT every time i made a remittance. Now after they made IMPS transactions free in Oct 2022, they have removed the default option and you can choose between IMPS or NEFT.
Replied to rashokan comment 1 year ago
Yes Mr. Ashokan. I am also an ex staff who is being treated very badly by the bank. If this is the plight of a well informed ex staff, you can imagine what would happen to a normal customer!!
1 year ago
Is IMPS transfer not a digital transaction? I have an account with IDBI bank and I can confirm that they charge Rs 5 plus GST when I make an IMPS transfer using internet banking.
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