From the first of May, the Reserve Bank of India (RBI) has permitted the banks, an increase in the charges for ATM transactions above a free limit. The free limit is 5 transactions in the ATM of your own bank, including financial and non-financial. Cash withdrawal is financial and account balance enquiry is non-financial. When one withdraws cash, the ATM pops up a message, āDo you want to see your balance?ā. If you click āyesā, it becomes two transactions. So if you withdraw money 3 times in a month and happily see your balance in the account, the sixth transaction onwards will be charged. If you use another bank ATM in the city, you are allowed 3 transactions only. If you transact outside the city, it will be five. How many customers know this? The charges were Rs. 21 per transaction earlier and from May 1 it is Rs. 23 plus GST of 18%, which amounts to Rs. 27.14 per transaction. Even if you withdraw Rs. 100, the service charges are the same. The increase may appear small, but the average transactions per day are 600 crores, and banks will earn a huge amount from these charges. In 2023, the banks had collected Rs. 8000 crores from ATM charges.
How People Were Lured to ATMs
When ATMs were introduced, banks compelled customers to take ATM cards saying they can transact 24 hours without standing in queues in banks and withdraw money anywhere in the country. They also said you can withdraw small amounts any number of times and one need not carry a lot of cash. Now that the customers have got used to it, banks have started charging. This amount will keep going up.
Trust in Banks Going Down
The trust in banks has started going down from the demonetization in 2016 which killed small and micro enterprises, apart from huge sufferings for every customer except the neo-rich. Now you have so many charges. In 2023, banks collected Rs. 21,000 crores as charges for not maintaining minimum average balance. Except State Bank of India (SBI), all banks are collecting minimum balance charges. SBI stopped it in 2020. In the year 2023, banks have collected Rs. 6000 crores as SMS charges.
Other Charges
Apart from this, banks are collecting cash handling charges, transaction charges, cheque book charges, and inspection charges for loan accounts, and many more on which RBI is keeping its eyes closed to. RBI should have stopped minimum balance charges which are levied on the poor. Almost 30% of the much-hyped Jan Dhan accounts have got closed. If one comes to close the accounts, the banks charge Rs. 500 as closing charges.
Can Banks Survive Without Deposits?
Banks are dependent on deposits, and in India, household deposits constitute more than 80% of the deposits. Banks donāt pay any interest on CA balance and pay simple interest of 2 to 2.5% on minimum average balance on savings bank accounts. CASA deposits constitute 40% of the deposits, and these deposits are used for giving loans from which banks make huge profit. Till the nineties, banks did not have most of these charges and banks were making profit still.
Why This is Happening?
After 1991, the objectives of banking changed with IMF and World Bank diktats, followed by Narasimham Committee recommendations. Banks were forced to give large credits to corporates at cheaper interest rates. Development Finance Institutions, which had expertise in long-term lending to industries and infrastructure, were converted to commercial banks like ICICI Bank, Axis Bank, and HDFC Bankāprivatized and handed over to foreign investors who hold majority shareholding in these banks. Public sector banks had to give long-term credit, which became non-performing assets. In 2016, the Insolvency and Bankruptcy Code was brought in, paving the way for National Company Law Tribunals. In the name of haircuts, more than 80% of the outstanding was written off, leading to loss or reduction in the profit of banks. To offset the losses, the service charges were introduced, though they could not offset the losses. So, interest on deposits was brought down. Fixed deposit rates have come down from 18% to 6.5%. SB accounts get 2ā2.5% interest, instead of 5ā6%. Interest rate on corporate loans came down, whereas interest on housing loans, MSME loans and education loans still remains high at 11ā12%.
Who is Benefitted?
On the contrary, 449 corporates have got loans at less than 5% for loans above hundred crores in 2024. 10838 corporates have got loans at less than 10% interest. To help these poor who get loans of Rs. 100 crores and above, the small depositors are penalized with little interest for deposits and charged with all kinds of service charges. RBI remains a mute spectator.
Public sector banks do not have watchdogs in their board in the form of workmen directors and non-workmen directors. Interest ceiling on loans charged by Non-Banking Financial Companies has been removed by RBI.
Savings Crucial
The savings rate in the country last year is the lowest in 50 years. Customers are moving away from banks. Gold and real estate are seen as better investment options.
The RBI has not implemented its own decision that a single corporate should not be provided more than Rs. 10,000 crores by a consortium of bankers.
Indebtedness of 90% of the population is going up. Their loans are charged even 100% interest by moneylenders.
Transparency in Lending
There is no transparency in lending rates! How did TATAs get Rs. 10,000 crores at 4% interest for buying Air India? What is the interest rate for Adani and Ambani group of companies?
RBI has to fulfill the objectives of the Constitution and the goals of nationalisation. Otherwise, the banking system will collapse.
RBI Has to Perform Its Role
RBIās actions and inactions are affecting the economy very badly. Time to wake up.
Thomas Franco is the former General Secretary of the All India Bank Officersā Confederation and a Steering Committee Member at the Global Labour University.
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