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Troubled Banks, Beleaguered Customers
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| 14/04/2015 03:33 PM |
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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.
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Comment
Mahesh S Bhatt 18 hours 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.
Mahesh
Srinivasarao Ravindranath 1 day 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 17 hours ago in reply to Srinivasarao Ravindranath
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 1 day ago in reply to Srinivasarao Ravindranath
WITH CORRECTIONS
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.
SuchindranathAiyerS 1 day 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 1 day 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!
MOHAN SIROYA 1 day 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.