ICICI, Axis, HDFC Bank limiting cash transactions at branches is really no big deal; here's why

Remember the times when you were unwell as a kid and your mother would forcefully shove the bitter cough syrup down your throat? And, there was nothing much you could do. The same applies to bank charges these days. Some banks, including HDFC Bank, have begun charging a minimum amount of Rs 150 per transaction for cash deposits and withdrawals beyond four a month. These charges are for cash transactions in the branches, and not for withdrawals through ATMs. [caption id=“attachment_3129638” align=“alignleft” width=“380”]  Representational image. Reuters[/caption] The reason why banks are doing their best to keep you away from the branch is simple - costs. Like any other business, banks are trying to cut their costs. You can help by transacting through a channel that works cheapest for the bank. For one, the branch is the costliest. For instance, if you were to go to a bank to  make a transaction, from a bank’s point of view, it costs around 30 times more than to carry out that transaction than through ATM or online. The next expensive is ATM, followed by the Internet and your fixed line or mobile phone. Cost is, however, just one side of the story. Many banks have started clinging to fee income desperately at a time when profits are not sustainable due to general economic slowdown and low credit offtake. The other element to consider is whether bank’s cost centres have become profit centres? Thirdly, alternate channels cost really less. According to a Assocham-PwC study  published last year, “Banks in India can reduce costs by up to 50 percent per transaction in the next few years by redesigning their processes and systems for the digital age, structurally changing their cost base and instituting more aggressive cost management processes.” In short, banks can halve transaction costs by going digital. From a common man’s point of view, banks charging Rs 150 for cash transactions at branches after a certain number of free transactions is pretty much a non-event. Honestly, before the demonetisation - which forced cashless channels on the country - how often did one visit a bank branch to actually make a deposit or withdrawal? The truth is, at least for urban customers, frequenting the branch had become a thing of past due to the spread of online banking. Even smaller businesses usually have current accounts which serve their cash transactions very well. According to a report in the Business Standard on 7 February 2015, ICICI Bank had only 15 percent of transactions via bank branches. In 2015, about 50-55 percent of ICICI Bank’s customer transacted via the digital medium. In 2015, there were 250 million people active on internet and the bank expects the number to double to 500 million by 2018. A report in The Economic Times  says that for SBI about 69 percent of daily transactions happen through alternative channels, including internet, ATM and mobile banking. By and large, the urban mass affluent, the 9-to-5 job holder, has moved past the branch banking and switched to other channels like ATM, internet, social media banking and mobile banking. From a rural banking consumer point of view, National Optical Fibre Network (NOFN) aka Bharat Net Project plans to connect about 2.5 lakh village panchayats with the internet, which will make net connectivity and smooth online banking a reality even in the remote areas. The project aims to connect 90,000 villages by the end of 2017. For those who still visit the bank branch, here is a tip. Have two accounts, one -the salary account and the other- investment account. Investment account is from where you set your ECS for various investments, your EMIs and the like. And keep a little over and above in the investment account, so that you can withdraw cash at a branch bank, just in case you exhaust the salary account’s free bank branch transactions limit. But the truth remains, like it or not, you have no options, but to move to alternative channels of banking. The fact that banks are now charging for branch transactions after a certain number of free transactions is really not a big deal. Most of us have moved online already and those who haven’t will eventually do. Just like the way you had to gulp down that bitter cough syrup, whether you liked it or not!