Paying the price

Much of the noise over bank charges in the past year has been thanks to SBI’s re-introduction of charges on non-maintenance of minimum balance in April last year. These charges which had been withdrawn in 2012, and levied now, have raked in a tidy ₹1,700-odd crore for SBI between April and November last year. That startling figure, nearly half the bank’s first half-year profits in the current fiscal, has once again flagged off concerns over banks unduly charging depositors for a plethora of services. While the charges that pinch customers the most — on non-maintenance of minimum balance and cash deposits and withdrawals at branches and ATMs — have always existed, the recent uproar over banks seeking to amass penalty income to make up for losses in their core lending business is not without reason.

Bankers argue that banks incur costs on maintenance of accounts be it staff or IT systems and hence they can break-even only if a minimum amount is maintained in these accounts. While this maybe so, it still does not explain why banks, aside from the umpteen charges on withdrawals at ATMs, online transfers and issue of cheque books, should impose an additional penalty for failure to maintain a minimum balance. After all banks are the custodians of public money and it is the business of a bank to accept deposits, which it relies heavily on for its lending activity. Also, a cut and dry argument of cost recovery cannot hold in a country like India, where nearly 70 per cent of savings accounts are in rural and semi-urban areas; meeting the minimum balance requirement of even ₹1,000-2,000 could prove onerous for such depositors with meagre incomes. While SBI has excluded pensioners, minors and all social beneficiary accounts from minimum average balance requirement, most other PSU Banks and private banks continue to recover charges across all regular savings accounts. The no-frills and Jan Dhan accounts with restricted services that are excluded from the minimum balance requirement, only serve a section of savers.

Under normal circumstances, a major portion of a bank’s income comes from lending, which allows it to absorb its day-to-day expenses, the basic tenet of running any viable business. It is evident then that with core lending taking a hit, state-run banks are now forced to explore alternative ways of raising income. With about three-fourths of the deposit accounts with PSU banks, minimum balance charges have turned out to be a lucrative source of income. However, profiting at the cost of savers is hardly the solution to the festering issues of weak governance and poor lending practices. It is time for the Centre and the regulator to step in and take a hard view on various charges imposed by banks to ensure that the interests of depositors are better served.

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