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PSU banks get more breathing space

Sep 15, 1999

In a step that gives more autonomy to the public sector banks, the Reserve Bank of India (RBI) has permitted them to fix service charges for their customers. So far, the banks had to follow the benchmark rates set by the Indian Banks Association (IBA). These rates would now form the floor for the service charges. As a rider, however, the RBI has cautioned that the rates charged should be reasonable and not out of line with the average cost of providing the service. The RBI's decision is in keeping with the process of providing increased autonomy to banks. This will enable them to become more competitive as they brace for more intense competition-from private and public sector banks.

As a fallout of this move, the banking customer will benefit as competition will ensure that growth in service charges is checked. However, the banks will be faced with the scenario of shrinking margins as competition hots up. This could adversely affect especially those banks that are just managing to keep their heads over water.

The RBI's move will go a long way in eradicating the inefficiencies of the public sector banking system. It will help in identifying the fundamentally weak banks, which could potentially pose a threat to the entire banking system.

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