Banking services should cost less


Today, banks offer us a plethora of products and value added services. Although a few of the technology intensive services (such as internet banking and mobile banking) are offered for free by a majority of banks, large number of other banking services come at a cost. What is even more surprising is that the costs of certain services are recovered through an unpublicized auto-debit, leaving the customer completely oblivious of it until much later.

For instance, non-maintenance of an Average Quarterly Balance (AQB) as prescribed by the bank attracts steep charges which are automatically debited from bank account. So, if the customer is not been regularly keeping a track of your account balance, it could cost the customer dearly. Similarly, in the account statement one may suddenly see items like ATM maintenance charges or ‘debit/credit card renewal fees’ debited from his /her account. In order to address the public grievances regarding these charges, the Reserve bank of India (RBI) has taken a few initiatives. The recommendations suggested by a working group are,

Service Charge for the same services Vary From bank To bank

Earlier, the responsibility of fixing the charges for basic banking services across all banks rested with the Indian Banks’ Association (IBA). However, post 1999, this practice was discontinued. Since then, these charges are fixed by the individual commercial banks. This has led to a disparity in charges across different banks for the same products/services offered. For instance, depending on the bank, the penalty levied for a check bounce generally ranges between Rs. 50 to 150.

To address the public grievances regarding these charges, the RBI took steps to ensure that service charges across banks are rationalized and transparent. In its annual policy statement

RBI advised all banks to ensure that the charges levied are in line with the costs incurred for providing the services. Moreover, all commercial banks were instructed to display and update, at frequent intervals, the details of all service charges on the bank’s website as well as at all the bank branches.

Further the RBI Working Group set up recommended a reasonable charge structure could be identified for all banks to comply with.

The Working Group made a list of all the basic financial services that are extended to individual customers by banks. From these services, the Working Group identified 27 banking services for which it would identify the charges that the bank could levy to the customer. This basket of services includes availing of demand drafts/pay orders, getting duplicate account statements, check book charges, check return fees, ATM and credit card related charges, making ECS payments, balance enquires, etc.
Apart from the aforementioned recommendations, the working Group has also advised banks to do away with certain unreasonable charges. These include balance enquiry fees, charges levied for any services provided without the customer’s consent (e.g. issuance of a debit card/ credit card) etc.

The suggestion to use ‘costs’ alone as a basis for determining the service charge has not been well received by the banks. Their argument is that the competitive environment, the brand that the bank offers along with the value additions provided to the customer for services offered, should also be taken into account whilst arriving at the ‘cost incurred’ by the bank for providing a product/service.

However the RBI may sort out the issues shortly to the relief of customers without much heartburn for the banks. We feel that the service charges must be rationale and Banks should not aim at making profit out of these services.