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Are Banks Fair In Levying Steep Penalties? - Outside View by PersonalFN

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Are Banks Fair In Levying Steep Penalties?
Mar 11, 2017

Bang!

Did you hear any noise?

No?

Spare some time to check your bank account.

It might show a crater.

Don't be surprised if people start using 'bang' and 'bank' interchangeably someday.

Post demonetisation, banks have been aggressively imposing higher penalties on their customers and hiking transaction charges across the board.

Have they become shylocks, all of a sudden?Let's find out...

Although banks have arbitrarily raised transaction charges, minimum balance requirement, and card fees in some cases, they haven't done anything unlawful. Fact is, the RBI offers them that liberty.

Then what's the trouble?

As India is a cash dominant economy, banks always struggle to retain deposits. However, the note ban changed the dynamics of the banking industry. The Government is now promoting a less-cash economy, and banks are hopeful that, if they somehow manage to discourage the cash withdrawals, they might solve their chronic problem.

Change in fee structure...

In a way, it would be prudent to infer that banks have become aggressive in their fee structure in an attempt to retain the low-cost deposits they managed to garner during demonetisation.

HDFC Bank, ICICI Bank, Axis Bank, and SBI have done a major rejuggle in the fee structure. SBI has hiked the minimum balance requirement from Rs 1,000 to Rs 5,000. While its private sector counterparts will soon charge you a higher fee for branch banking transactions. Moreover, a bank debit card may cost you as high as Rs 950 p.a. and your bank may charge you Rs 600 excluding taxes for non-maintenance.

Should you worry about this?

Primarily, you need to understand, you still get 8 to 10 ATM transactions free (when home ATM and non-home ATM limits are clubbed) in a month. This means you can withdraw money every fourth day. Banks have placed daily withdrawal limits, however considering the average quantum of withdrawals of a common man, they are high enough.

Banks charge you a fee for using online money transfer options such as Immediate Payment Service (IMPS) and Real Time Gross Settlement (RTGS), but they offer you a convenience. Apparently, there's no change in these costs of late, at any bank.

It's noteworthy that, not all banks have hiked fees and the minimum balance requirements.

In other words, you have multiple alternatives. For example, if you receive your salary in one bank, you may transfer a part of the money to another bank account. Now effectively you get 16 to 20 free ATM transactions. Because in place of just one bank account, you are using two bank accounts. Most of the nationalised banks and major cooperative banks haven't discouraged branch banking or ATM transaction, so far. Take advantage of this.

Bank less with banks that charge you more, or you may avoid them altogether if you don't want to pay for the service. But this won't absolve banks that have hiked fees abruptly.

Interestingly, top bosses of these banks have been candidly supporting their moves that too in a blithe arrogance.

Mr Aditya Puri, Managing Director of HDFC Bank made a ridiculous comment while speaking to media on this topic. He said, "You don't go to Oberoi Hotel and ask for Mahesh Lunch Home rates."

In defence of latest changes in the fee structure at HDFC Bank, Mr Puri asked a counter question. "We get a Rs 10,000 savings bank deposit. I have to pay 4% interest, 4% I have to keep as CRR. I earn around Rs 200 in one year. In this Rs 200, what all you want? Free ATM you want, no cheque book charge you want, no cash handling charge you want, he added.

For the sake of argument, let's assume bank customers are crying wolf. And ideally, customers shouldn't expect a free lunch, least of all from shylocks.

But hope banks - who've been aggressive in their fee structure - realise that the charges are effectively eroding what a common man would earn on their savings bank account.

Likewise, banks should also be ready to pay the penalty for the deficient services. For example, if a home-ATM is not in working-order, which is why a customer is forced to use the ATMs of other banks, the bank shall have no qualms in paying the compensation to the customer for such inconvenience.

Five-star rates shall be charged only for five-star services.

Banks that are busy teaching money wisdom to customers, will struggle for fresh air should customers start demanding bang for their buck.

Consider the case of data breaches...

How much shall a bank pay you as compensation in a 'five-star suit'?

How much compensation customers shall demand for being mis-sold banking and third party products?

Certainly at a five-star rate.

To conclude...

In a highly competitive banking environment, customers should be ready to pay for the quality services without making much noise. But similarly, the banks shall also be willing to pay "inconvenience fees."

After all, in a luxurious sea-facing five-star suite, you can't afford to install a table fan in place of air conditioner and yet expect the customer to pay.

Isn't it time to hold up the mirror to brazen banks?

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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