Should banks charge for services?
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Recently, many banks have increased their charges on banking services. Banks review these charges almost every year. Here is what the experts have to say about the rationale and impact of these charges. Excerpts:
Neeraj Vyas, deputy managing director and chief operating officer, State Bank of India
In April 2012, we withdrew the charges for not maintaining minimum balance. In 2017 we reintroduced them, with one change. Now we are talking about a monthly average balance... But we are not the only ones in the industry. The details of the charges are on our website. If I have an account in a metro and I keep Rs1.5 lakh in the account, then my minimum average balance would be Rs5,000. It is not minimum balance but a monthly average... This is not applicable to basic accounts and Jan Dhan accounts. We have almost 11 crore accounts where these charges will not apply. Now, why are we applying these charges? It is a business decision. If I maintain 25-26 crore accounts, I give so many free facilities. But all the free transactions definitely involve a cost. One major cost is creation of an ATM network. In our group, we provide 55,000 ATMs. Even if I take minimum cost of Rs5-7 lakh per ATM, I have spent Rs4,000 crore to create this network. If I have to upgrade technology, maintain my core banking system, keep my 16,000 branches secure and provide anywhere anytime banking, somewhere I have to levy the charges. If I provide everything for free, from where can I put money for development? Also, a normal person would not go more than 10 times to withdraw money from a bank. As per the regulator, it is now mandatory to disclose the details of charges.
Naveen Kukreja, chief executive officer and co-founder, Paisabazaar.com
Banks incur costs each time a customer makes a transaction or uses their services. To recover these, banks charge customers for some of the transactions and services, such as cash transactions beyond a defined limit. After the government’s demonetization move, two things have happened for banks. First, their ability to earn from areas, like merchant discount rate (MDR) on cards has got capped and hence, their income has reduced. To compensate for such losses, most banks may have decided to increase charges in areas like cash deposit and withdrawal from branches. Some have also raised charges for ATM usage, minimum balance and SMS alerts. Though these charges are small per transaction, banks hope to get revenue through them given the large volume of such transactions. Second, there is a genuine push to increase the share of digital transactions, as banks have now realized that it does reduce their operational costs in the long run. There is nothing wrong with banks increasing the charges as long as they are transparent about it and communicate in advance. The banking industry is fairly competitive and chances of charges being completely unfair are low. Customers should find out all the charges associated with their transactions. They can then compare their options, and switch to banks that are better suited to their needs and requirements.
Adhil Shetty, founder and chief executive officer, BankBazaar.com
Consumers of any financial process—payments, loans, insurance or mutual fund—would see a genuine push towards going digital due to various cost factors and the push towards moving paperless. Charges vary bank to bank as well as service to service. The charges depend on operations and costs of each bank. Today there many choices available on your mobile phone which are very convenient. UPI (Unified Payment Interface) is an easy way to make a number of payments. As an internet entrepreneur, what I can say is that there are definite benefits of paperless payments and use of technology. Right now, given that so many of these services are available, I think more and more people will be gravitating towards technology to ensure that costs stay low. The trend is that more people would be using digital. For instance, today for my staff that works at home, I pay directly using UPI or Immediate Payment Service (IMPS). So, either I create a virtual ID for UPI or I take their bank account information and set it up on my mobile app. The payment to all my staff happens electronically. The reason I do it is that I don’t want to withdraw money by walking into a branch. I can’t comment on the charges that banks levy because I don’t operate in that area and hence am not sure what their profit and loss is. I do see that people like me are saying that let us do it electronically and save some money.
Jose K Mathew, general manager, retail business, Federal Bank Ltd
In banking, charges are levied for services that are above plain-vanilla. The savings accounts are categorised, based primarily on the minimum balance requirements. For accounts at the lower end of the spectrum, charges are low or non-existent. Naturally, the facilities those customers get will also be fewer. Similarly, savings accounts at the higher end of the spectrum offer better services. For any organization to sustain, it needs to have clear revenue streams and service charges are one such stream in banking...any prudent organization follows a stringent mechanism while fixing service charges. We take extreme care to ensure that the service charges are levied in proportion to the services rendered. A drill-down of the service charge structure will indicate that the charges levied are always in tandem with the levels of services rendered. It is a regulatory mandate that information relating to service charges be put up by every bank on its website. Customers can easily check out the same. Additionally, the Banking Codes and Standards Board of India has also given out a guideline on ‘Code of Bank’s commitment to customers’. Most banks have adopted it as their own commitment. A copy of the same is up on our site and we presume it would be available on other banks’ sites too. I can assure our customers that Federal Bank follows the commitment to the dot.