Perhaps for the first time, the Reserve Bank of India's Credit Policy has actually been penned for the common man -- to be more exact, the bank customer.
Banks today are charging for every service offered under the sun. Charges are imposed for simple every day enquiries.
Development Credit Bank charged Rs 50 from its customer for a simple verification of his signature. All the bank clerk did was check the record and stamp the document, which need a banker's verification of a signature.
ICICI Bank and Citibank levy a punitive charge on cash transactions customers undertake at the branch level, if it goes beyond a stipulated number within a month!
These are not the exceptional few banks levying charges on customers for operating their own accounts. A host of private sector and foreign banks have a minimum balance requirement that varies as high as Rs 10,000-25,000.
This is in vast contrast to public sector banks, which imposes a relatively small minimum balance figure of just Rs 500-1,000. Failure to maintain the minimium balance results in a penalty of Rs 50-100.
It is not so much the actual amount charged so much so that banks feel they are doing depositors a 'service' when customers make balance enquiries, cheque status, signature verification, address confirmation, photograph verification, re-order cheque books, etc. After all is that not what a bank is supposed to do?
Costs are lower when bank customers undertake banking transactions through the electronic mode than at branches. The difference can be as much as 50 per cent, said senior bank executives, admitting that banks are 'incentivising' customers to move to the electronic form of banking.
One then wonders why banks are then opening branches -- to get closer to the customer, or to distant him by imposing charges?
Foreign banks offer a plethora of services free to a certain section of customers but there is a major catch. One needs to keep a minimum balance of Rs 1 lakh in a savings account. Of course, one would earn an interest on the same, but look at the opportunity cost involved had the same funds been 'invested' more productively.
With the Reserve Bank of India expected to crack the whip, depositors can expect major improvement in service standards. Charges could well be brought done, and ideally done away with! Services should be inclusive and not exclusive, says RBI Governor Y V Reddy.
The credit policy pointed out that with the expansion and competitive pressures in the banking sector as with the diversification of ownership of banks, there are certain banking practices that tend to exclude rather than attract vast sections of the population.
The central bank fears that customers with minimal balances like pensioners, self-employed and those employed in the unorganised sector are the affected lot, as banks unscrupulously levy huge charges.
Commercial considerations while are important, "banks have been bestowed with several privileges, especially of seeking public deposits on a highly leveraged basis, and consequently they should be obliged to provide banking services to all segments of the population, on equitable basis," said the central bank.
Very shortly one can expect the RBI to adopt a carrot and stick approach as it encourages banks which provide extensive services while disincentivising those which are not responsive to the banking needs of the community.
This is not a local phenomenon. In Canada, the issue of bank service charges was the subject of a 1988 investigation conducted by the House of Commons Standing Committee on Finance. The committee report set out a number of recommendations, which have subsequently been reflected in market practice.
Similarly, in the US, organisations such as Consumers' Union are fighting to create legislation that will help protect vulnerable consumers from price gouging on checking accounts.
US consumer groups are against what they call is the "trap of never-ending bank fees that is impossible to escape", said RBI. US consumers are demanding 'lifeline banking' legislation, which will give consumers access to basic banking services and protect them from exorbitant fees and surcharges.
Following in the footsteps of its British counterparts, the RBI proposes to set up an independent Banking Codes and Standards Board of India that will ensure comprehensive code of conduct for fair treatment of customers.
Guidelines issued will push for the need for transparency and disclosure of information as well as customer rights protection.
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