It is not going too long before banks start charging the customers for walking in and depositing cash or withdrawing the same from their own accounts. It is now accepted that banks want the deposits of the households as this is the raw material used to do business, but at the same time does not want the customer to come in that often. The same holds for a current account which is held by business people who provide zero-cost deposits to the bank. While private banks have already brought in such a charge-card, public sector banks are almost in consonance on this issue with their peers in the private sector.
Such an action does throw up an interesting debate about whether such a step is right. This is important to address because the RBI has not raised any objection which means that it does not think that it is an unfair practice. Curiously, the RBI has been exhorting banks to lower their lending rates to lower the costs of borrowers but has not taken a similar stance on keeping costs low for deposit holders.
The banks have justified such a move on two grounds- if you want better service you should pay for it; or that such charges will cover banks for the costs incurred on Jan Dhan accounts which will not be included.
The arguments on the banks’ side are commercial. They need to increase their fee income and this is the only way to do it. They would like to free their staff from handling such mundane cash transactions and move them to higher value added work. Even if one is using the ATM, there is a cost for the bank which can be reduced in case customers are charged beyond a point.
The minimum balance rule which will be applied more acutely is based on the premise that customers have to keep the minimum balance of Rs 1,000 or Rs 5,000 because maintaining an account for the bank is high (this can be contested in the electronic age where the bank really does not have to do much).
The customers are quite right to be peeved by this action. The deposits kept in the bank are subsided funds. Current accounts do not earn any interest and savings deposits earn just 4 percent. Banks earn anywhere between 9-11 percent on these funds which are usually free float as on balance this number does not really change over time and only increases.
Charging them for cash withdrawals sounds like travesty as a person should have the freedom to take out their own savings when they feel like doing so. The ATMs cannot give more than Rs 10,000 or Rs 20,000 at a time because of the limitation on the number of notes that can be dispensed. Therefore, there is a very good chance of ending up paying the fine for exceeding the 3-times usage of a machine.
Businessmen will have a problem in depositing cash as most of their transaction are in currency and they do deposit these funds in a bank as they cannot hold on to large quantities of cash. With this new rule, they have to restrict their visits and have to deposit in bulk quantities. Ironically they would have to pay the bank for keeping free money on which they can earn a return! And the curious thing is that there are no options for anyone who wants to deposit money as no other institution (except post offices, which also has restrictions) offer this facility. While this may be termed as being an exercise of monopoly or oligopolistic power, as all banks end up doing the same thing, the customer would have to bear the cost or go digital.
This can be one way the government would manage to make people go digital by making dealing with cash expensive. It was expected in the Budget that there would be a cash-transaction tax imposed, which has been deferred for the time being. But the same is being imposed by banks now which serve the same purpose of taxing the use of cash.
Is this the right thing? Difficult to give a balanced answer as it depends on which side of the table one is sitting. As a deposit holder, the argument can be that the bank runs on the basis of deposits, unlike companies which have shareholders. When a bank sinks, the concern is that deposit holders are affected and not the shareholders. The bank is never put in the dock when bad lending decisions are taken and NPAs increase as they are not serving the deposit holders. Therefore deposit holders have a right to feel aggrieved here that they are entitled to these services free of cost. It is analogous to charge the shareholder a fee for every bit of information asked from the company!
The clinching argument of banks is that they are commercial and answerable to shareholders and have to work at increasing their shareholder value. Besides, such charges are common in all developed countries and no one complains. In fact the savings account interest is a bonanza for Indians as there are systems which do not offer such returns – you can be charged at times when interest rates turn negative (though this holds for banks in the euro region).
The solution here really is that the RBI should set guidelines for the banks and ensure that the rules are fair to the customer. On balance banking business works because there are deposits; and hence levying charges or raising levies would be a display of monopolistic power. Depositing and withdrawing one’s own money cannot be called ‘better services’ but the basic duty of a bank. Also in an age where we are trying to provide banking to all, one deterrent would be that there could be a charge on the account at some point of time – today Jan Dhan is free, but nothing stops banks from bringing in some levies at a later date.
Therefore, both ideologically and ethically speaking, such charges should be controlled and regulated by the RBI. In fact, it would be interesting to see how much money would be mobilised by banks on this score which can be juxtaposed to other wastages that take place in these institutions as a matter of habit.
The writer is Chief Economist, CARE Ratings. Views are personal
Updated Date: Mar 12, 2017 10:17 AM