Sucheta Dalal :Overcharged and Underserviced
Sucheta Dalal

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Overcharged & Underserviced  

July 28, 2009

 

In a recent speech at Hyderabad, Dr D Subbarao, governor of the Reserve Bank of India said that he was surprised that “transfer of funds from one branch of a bank to another, both under the core banking system (CBS), entails a service charge for the remitting customer.” He asked banks to lower the intra-bank fund transfer charges saying, “By imposing charges not commensurate with the cost of services provided, we risk losing this fundamental trust that underlies a banking relationship.” The governor has merely touched the fringe of a big problem: high bank charges and relatively poor customer service.

Since 1999, banks had been given the freedom to fix their own charges. But, by 2006, the rates had risen so much that the RBI had to set up a working group to ensure ‘reasonableness of bank charges’. Yet, banks as well as customers are accustomed to higher charges and technology-driven improvement in services. So customer grievances today are usually not about things such as rules for minimum balance (although these are too high at some banks) or the cost of cheque leaves. These are about the lack of clarity regarding levying of various charges and discrimination against existing customers in the name of competition and ‘customer acquisition’.  

Dr Subbarao makes a valid point about banks losing ‘fundamental trust’ through unreasonable charges but, until good borrowing is encouraged through incentives and facilities, banks will remain unconcerned. So far, good borrowing has been valued only at the sub-prime level, but that market is now dead. So the RBI continues to grapple with the issue of ‘reasonableness’ of charges without including issues such as services or competition in its ambit. The RBI is correctly concerned about disclosures. For instance, it would not only like banks to list various charges for a product or service, but provide the ordinary customer a consolidated figure of the total cost. We learn that such a disclosure may be made mandatory in the interest of clarity and transparency.  But there are other issues that also need to be addressed.

Arjun, a US-returned Indian, is agitated at his bank offering lower rates to new home loan borrowers, while refusing to lower his floating rate interest. In the US, his excellent credit history would immediately allow him to switch to another lender in such a discriminatory situation. The RBI needs to intervene and ask banks to encourage good borrowing habits in the larger interest of the banking industry.

Now that the RBI has licensed three new credit bureaux along with CIBIL (Credit Information Bureau of India Ltd), it must ensure healthy competition as well as a specific monetary advantage of having a good credit record. Unfortunately, even a year after the biggest consumer lending fiasco in the world, Indian banks are making no effort at educating consumers about the need to build good credit histories by offering lower interest rates or better terms to those with good credit scores. On the other hand, they were quick to adopt the most intimidating recovery tactics against defaulters. Will it need a push from the central bank before banks work at attracting good customers through positive discrimination?

If governor Subbarao was surprised at the high intra-branch charges, then he would be even more surprised at the question that the Central Information Commission (CIC) has asked the RBI: can a bank credit a customer’s money into a temporary account due to minor errors such as a spelling mistake? Certain banks also push international remittances to such suspense accounts for weeks on end, by raising frivolous claims about lack of clarity or details of the beneficiaries.

In the past year, many banks have been harassing customers by frequently returning cheques on the grounds of ‘signature mismatch’. Customers not only face the ignominy of needless delay in payments, but are even charged by banks. When questioned, banks claim they are following RBI instructions. 

As against this, we have one positive example of HDFC Bank responding to a customer’s logical and persistent query. Irritated at the high charge of Rs5 per transaction for the National Electronic Funds Transfer (NEFT) facility through netbanking, Anil Kelkar wrote to the Bank pointing out that it was cheaper to issue a cheque. He said, “On the one hand, you encourage people to use netbanking and telephone banking with all kinds of prizes and incentives… and, on the other hand, you discourage this electronic facility” by levying high charges. Mr Kelkar charged that the Bank was “milking the facility for what it was worth” just because the RBI allowed it to. HDFC Bank mulled over

Mr Kelkar’s suggestion for a couple of months and has responded with a decision to scrap NEFT charges on netbanking transactions. Wouldn’t it have been wonderful if the RBI had responded with an industry-wide policy about NEFT charges, at least for individual customers?

Another issue that has been highlighted by many of our readers is the harassment that they face over the issue of TDS certificates on fixed deposits. Many public sector banks don’t bother to credit the tax deducted on deposits or report it to the NSDL’s tax reporting system. It is during finance minister P Chidambaram’s tenure when Dr Subbarao was finance secretary that the finance ministry decided to penalise taxpayers for reporting lapses of tax deductors. Now that he is heading the RBI, maybe Dr Subbarao can convince the finance ministry about the unreasonableness of its demands on depositors regarding TDS. That would be an important contribution to the reasonableness of the banking experience!

 

Sucheta Dalal is the Consulting Editor of Moneylife. Subscribers get free help in

resolving their problems with select providers of  financial services. She can be reached at suchetadalal @yahoo.com

In a recent speech at Hyderabad, Dr D Subbarao, governor of the Reserve Bank of India said that he was surprised that “transfer of funds from one branch of a bank to another, both under the core banking system (CBS), entails a service charge for the remitting customer.” He asked banks to lower the intra-bank fund transfer charges saying, “By imposing charges not commensurate with the cost of services provided, we risk losing this fundamental trust that underlies a banking relationship.” The governor has merely touched the fringe of a big problem: high bank charges and relatively poor customer service.

Since 1999, banks had been given the freedom to fix their own charges. But, by 2006, the rates had risen so much that the RBI had to set up a working group to ensure ‘reasonableness of bank charges’. Yet, banks as well as customers are accustomed to higher charges and technology-driven improvement in services. So customer grievances today are usually not about things such as rules for minimum balance (although these are too high at some banks) or the cost of cheque leaves. These are about the lack of clarity regarding levying of various charges and discrimination against existing customers in the name of competition and ‘customer acquisition’.  

Dr Subbarao makes a valid point about banks losing ‘fundamental trust’ through unreasonable charges but, until good borrowing is encouraged through incentives and facilities, banks will remain unconcerned. So far, good borrowing has been valued only at the sub-prime level, but that market is now dead. So the RBI continues to grapple with the issue of ‘reasonableness’ of charges without including issues such as services or competition in its ambit. The RBI is correctly concerned about disclosures. For instance, it would not only like banks to list various charges for a product or service, but provide the ordinary customer a consolidated figure of the total cost. We learn that such a disclosure may be made mandatory in the interest of clarity and transparency.  But there are other issues that also need to be addressed.

Arjun, a US-returned Indian, is agitated at his bank offering lower rates to new home loan borrowers, while refusing to lower his floating rate interest. In the US, his excellent credit history would immediately allow him to switch to another lender in such a discriminatory situation. The RBI needs to intervene and ask banks to encourage good borrowing habits in the larger interest of the banking industry.

Now that the RBI has licensed three new credit bureaux along with CIBIL (Credit Information Bureau of India Ltd), it must ensure healthy competition as well as a specific monetary advantage of having a good credit record. Unfortunately, even a year after the biggest consumer lending fiasco in the world, Indian banks are making no effort at educating consumers about the need to build good credit histories by offering lower interest rates or better terms to those with good credit scores. On the other hand, they were quick to adopt the most intimidating recovery tactics against defaulters. Will it need a push from the central bank before banks work at attracting good customers through positive discrimination?

If governor Subbarao was surprised at the high intra-branch charges, then he would be even more surprised at the question that the Central Information Commission (CIC) has asked the RBI: can a bank credit a customer’s money into a temporary account due to minor errors such as a spelling mistake? Certain banks also push international remittances to such suspense accounts for weeks on end, by raising frivolous claims about lack of clarity or details of the beneficiaries.

In the past year, many banks have been harassing customers by frequently returning cheques on the grounds of ‘signature mismatch’. Customers not only face the ignominy of needless delay in payments, but are even charged by banks. When questioned, banks claim they are following RBI instructions. 

As against this, we have one positive example of HDFC Bank responding to a customer’s logical and persistent query. Irritated at the high charge of Rs5 per transaction for the National Electronic Funds Transfer (NEFT) facility through netbanking, Anil Kelkar wrote to the Bank pointing out that it was cheaper to issue a cheque. He said, “On the one hand, you encourage people to use netbanking and telephone banking with all kinds of prizes and incentives… and, on the other hand, you discourage this electronic facility” by levying high charges. Mr Kelkar charged that the Bank was “milking the facility for what it was worth” just because the RBI allowed it to. HDFC Bank mulled over

Mr Kelkar’s suggestion for a couple of months and has responded with a decision to scrap NEFT charges on netbanking transactions. Wouldn’t it have been wonderful if the RBI had responded with an industry-wide policy about NEFT charges, at least for individual customers?

Another issue that has been highlighted by many of our readers is the harassment that they face over the issue of TDS certificates on fixed deposits. Many public sector banks don’t bother to credit the tax deducted on deposits or report it to the NSDL’s tax reporting system. It is during finance minister P Chidambaram’s tenure when Dr Subbarao was finance secretary that the finance ministry decided to penalise taxpayers for reporting lapses of tax deductors. Now that he is heading the RBI, maybe Dr Subbarao can convince the finance ministry about the unreasonableness of its demands on depositors regarding TDS. That would be an important contribution to the reasonableness of the banking experience!

 

Sucheta Dalal is the Consulting Editor of Moneylife. Subscribers get free help in

resolving their problems with select providers of  financial services. She can be reached at suchetadalal @yahoo.com

 


-- Sucheta Dalal



 



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