The banking regulator, the Reserve Bank of India (RBI), recently asked the Indian Banks’ Association (IBA) to put in place guidelines that define “reasonable charges” on bank customers.
The backdrop was rising consumer complaints to the RBI on “unreasonable” charges that depositors end up paying for routine banking functions. Some of these are getting a cheque book, putting a stop-payment instruction in place, getting a duplicate statement or even for slipping below the minimum balance threshold momentarily.
Till 1997, service charges and fees levied by banks were governed by IBA. Thereafter, individual banks were allowed to decide their own charges since India had moved to a market-linked economy. But persistent consumer complaints moved the bank regulator into forming a sub-committee to frame guidelines on charges and fees. Says M.S. Sundara Rajan, chairman and managing director, Indian Bank: “If the regulator decides so, all banks would have to go by the guidelines. This move will put a stop to unreasonable charges, which so many banks levy at present.”
Will it happen?
While most public sector banks we spoke to welcomed the move, private and foreign banks were more restrained. It seemed they would prefer to wait for the guidelines. M.D. Mallya, chairman and managing director, Bank of Baroda says: “This is a welcome move and will benefit customers.”
A senior IBA official, who did not want to be named, didn’t sound too positive. “Though the committee is formed, nothing much will come out of the guidelines, it will just give broad principles on charges and fees. No bank will be interested in reducing their fee income,” he said.
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On the other hand, a senior RBI officer sounded certain that this initiative will have a huge impact. “RBI has received numerous complaints on exorbitant charges. It’s obvious that banks will be reluctant to let go. RBI has given the banks a long rope, but banks seem to have taken undue advantage. As per the 2006 guidelines, all bank fees are to be transparent and as per the cost incurred. We have given banks a chance. If they fail to come up with a reasonable solution, RBI will take a regulatory view,” he said.
Money Matters did a quick survey of three state-owned, private and foreign banks each to look at the difference in charges for five services that affect bank customers most commonly. The information was taken from their respective website.
For not maintaining a quarterly balance, state-owned banks charge a fraction of what their private and foreign counterparts charge. Most public sector banks charge less than Rs250 a quarter, while private and foreign banks charge at least Rs750 per quarter for the same consumer error.
New cheque book costs show no trend between banks and are either free or cost more than Re1 per leaf. Each time you make a stop-payment request, it costs you. Again there is no clear trend across the banks. While the State Bank of India will charge at least Rs50, Standard Chartered will charge between Rs75 and Rs175. Some banks such as Citibank do not charge for online requests, but bill you Rs100 for a branch visit to get that cheque cancelled.
Duplicate statements show the same trend—banks don’t want you to visit the branches as it increases their costs. HDFC Bank Ltd will charge you Rs100 if you go to the branch and just Rs30 if you use your Internet connection and online banking facility. Citibank makes this free for an online transaction but charges Rs100 at the branch.
What you should do
Banks do send you this information when you open an account and each time they change these charges—leaflets that most of us do not read. Rather than getting into the time-wasting process of understanding each charge, it will work well to understand what the banks want to discourage. They don’t want you to come to the branch. So, use your mobile and Net banking to its maximum to reduce the chances of inadvertently paying charges that you needn’t.