One of the first restrictions on major services, which were offered for free by banks earlier, was the number of free transactions on automated teller machines (ATMs). Initially, they imposed a limit on free transactions on other banks’ cash machines, but it later spilt over to their own ATMs as well.
Also, there was a time when transferring money to another account was free via most electronic modes. This is not the case anymore.
Though certain services of banks – such as loan processing fee – have almost always been paid, most services like cash transfer and ATM withdrawals were free for a significant period of time. That is changing now with banks looking at every opportunity to levy a charge for services given to the customer.
One of the reasons for this is the banks’ pressure to show an increase in its fee income every quarter. Most banks are listed entities, and their financial performance is of consequence to shareholders.
But if this comes at the cost of customers, then the picture doesn’t look pretty.
The current picture
One issue that struck a nerve with customers is the banks’ levy of penalty on customers for not maintaining the minimum average balance (MAB).
State Bank of India (SBI), the largest Indian bank by assets, has benefited heavily due to the aforementioned charges. According to a report, it received Rs 1,771 crore via the MAB penalty during April to November 2017. In comparison, the bank’s net profit during April to September had stood at Rs 3,586 crore.
SBI had increased the MAB requirements in June 2017. But due to public outcry, it reduced these requirements to where they stand today: MAB of Rs 3,000 for metros and urban areas, Rs 2,000 for semi-urban branches, and Rs 1,000 for rural branches.
Private sector banks like ICICI Bank and HDFC Bank have much higher minimum balance requirements for their classification of areas.
The creeping levies
Another major area which has become chargeable relatively recently is the number of free cash transactions in a month. While SBI allows three free deposits a month and charges Rs 50+GST (goods and services tax) on every successive deposit, ICICI Bank and HDFC Bank allow four free transactions and charge Rs 150+GST for every successive transaction.
Though relatively small compared to the above, banks also charge an annual fee for debit cards issued to customers as well as a quarterly fee for SMS alerts sent to register mobile numbers. While the annual debit card fee depends on the tier of the card a customer holds, SMS charges are typically Rs 15+GST per quarter.
Digital transactions via NEFT (National Electronic Funds Transfer) and RTGS (Real Time Gross Settlement) channels are also charged in most cases with the fee being dependent on the size of the transaction.
And as outlined earlier in the article, all ATM transactions, including the balance enquiry, incur charges after a customer meets their free transaction limit for a month.
Thus, it seems that almost any service that one requests at a bank is charged these days. The irony is that not only cash transactions but plastic money and digital transactions are charged as well. This was not the case until a few years ago when plastic money and digital banking services were free to induce customers to move towards these channels of banking.
So, when news came out recently that public sector banks may be doing away with free services completely from January 20, 2018, it caused quite a stir.
Paying for everything
The outline of bank charges set out in the previous segment makes up for a significant portion of services. But some less obvious services are still free, for instance, passbook update.
When reports emerged earlier in the month that Bank of India had proposed charging for passbook updates, issuing balance statements, signature verification, photo attestation, and for KYC (know your customer) updates – services which are free as of now – it kicked up a storm. The bank quickly removed the link to document from its website which detailed the proposed changes.
However, information regarding levying charges for hitherto free services provided by public sector banks continued doing the rounds on social media platforms. This was denied by Indian Banks Association who said they are based on “misinformed communication”.
Though banking is like any other business, it is fundamentally different in one aspect that it has become essential in today’s world. With central government schemes like Jan Dhan Yojna, which was launched to bring in a vast section of our population into formal banking, coupled with the digital push and the promotion of the use of less cash, banking has become more ubiquitous than ever.
However, this trend of raising charges on nearly all major banking services will put customers in a spot. With formalisation of the economy and digitisation, banking is an essential service now and not an optional one. So it is time for India’s banking regulator RBI to jump in and take a harder look at this practice.
|Bank||Penalty for non-maintenance of Minimum Average Balance||Cheque Returned||Cash transaction charges at branches
(beyond free limit)
|Charges on ATM transactions (beyond free limit)|
|State Bank of India||Rs 20-Rs 50 for various limits||Rs 550||Rs 50||Own ATM – Rs 10; Other banks’ ATM –Rs 20|
|Punjab National Bank||Rs 20 – Rs 250||Rs 300 – Rs 2,000 depending upon value||Deposit at base branch (Above Rs 2 lakh) – Rs 1 per Rs 1000; Outstation branch – Rs. 2 per Rs. 1000||Rs 20|
|HDFC Bank||Rs 150-600||Rs 350/cheque a quarter; thereafter,
Rs 100/return for financial reason
|Rs 150 per transaction post 5th transaction||Rs 20;
for non-financial transaction: Rs. 8.5/transaction
|ICICI Bank||Upto Rs 600||Rs 350 per cheque/month;||At all branches: Rs 5 per Rs 1,000 or Rs 150, whichever is higher beyond free limit||Rs 20. For non-financial transactions: Rs 8.5|
|Axis Bank||Rs 100 – Rs 500||Rs 350 per return||Rs 5 per Rs 1000 or Rs 150 whichever is higher||Rs 20; For non-financial transactions: Rs 8.5|
RupeeIQ Research (all costs per transaction)