The RBI and the government must restrict banks to rip off customers

When the government is striving to make public sector banks people centric through various measures, state-run banks have virtually fleeced Rs 10,391 crore from regular retail customers in the form of ATM charges, and small accountholders who were unable to maintain monthly average balances, according to the government data provided to Parliament. As per the data, banks have collected Rs 6,246 crore from small savings and deposit accounts that have not maintained minimum balances prescribed by them. Another Rs 4,145 crore have been mopped up due to ATM charges.

Are banks justified in making huge revenues from automatic teller machine charges and small retail accounts? The issue assumes larger significance at a time when they have been burdened with dud assets of corporate accounts and sticky loans availed by fly-by-night operators. When corporate operations – both lending and repayments – have come to a standstill, it’s the retail customers that have become lifeline of these the banks. And in such a case, banks must accord the customer preferential treatment rather than taxing them frivolously with various charges. In fact, the banks have mobilised huge revenues from ATMs and small accounts at a time when the sticky loans have touched Rs 10.83 lakh crore, forcing them take a huge haircut in virtually two thirds of the accounts.

Both these levies (ATM charges and penalty for low balance) have no logic, reasoning or rationale. In a services industry from retail customers’ point of view, interest payments would not only sustain the operations but also allow for decent profits.

In the first place, minimum balance requirements are different in different bank allowing a huge flexibility to their managements in garnering money from clients. After realizing the exploitative practices of banks, the RBI made a valiant attempt to regulate these charges. Most charges on minimum balances may violate natural principles of justice given that they far exceed the general average cost of services provided by banks. Similarly, charges levied on ATMs usage beyond the three free transactions allowed in a month are against the spirit of the banking industry. Even here, exploitation of customers was limited after the RBI and the finance ministry forced lenders not to levy beyond Rs 20 per transaction.

Banks should dissuade from the temptation of relying on retail customers to cross-subsidise the losses posted on corporate accounts, which have reportedly been humungous. What if all customers decide to boycott ATMs and line up before banks for simple facilities, like cash transactions or cheque deposits? If banks were to set up additional branches or counters to meet the customers’ requirements, investment costs or operational expenses would be much larger.

In any case, ATMs in several sub-urban areas, small towns and villages fails to serve the purpose due to various lacunas forcing customers to traverse distances for cash withdrawals and making deposits. Closure of ATMs even in metros citing “non-viability” has become a phenomenon. If banks were to impose charges on savings bank accounts or ATMs, then the RBI should consider penalties on banks in case they fail to offer such services.

Similarly, levies on services by private and foreign banks are much larger. For instance, even on small remittances made by workers of the Indian origin from foreign destinations get hugely charged for intermediation or nostro levies. Making banks operations transparent and charges upfront on customers should be the priority of both the government and the RBI. Also, a plan needs to be put in place to phase out all levies over next three years especially for retail customers that not only provide huge business and deposits.