As a part of FAN India’s campaign against bank charges imposed on saving account holders, people have been lending support by sending emails to RBI governor and demanding the removal of the various charges levied by banks. This document is a point-by-point rebuttal to a response to the RBI’s email that many signatories received.

RBI’s response, point 2: In this regard, we have not issued any specific instructions regarding service charges to be levied by banks on various types of banking transactions since in terms of our extant instructions, with effect from September 7, 1999, Scheduled Commercial Banks have been given the freedom to fix service charges for various types of services rendered by them. However, in terms of paragraph 6 of Master Circular on ‘Customer Service in Banks’ issued vide DBR. No.Leg.BC.21/09.07.006/2015-16 dated July 1, 2015 (available on our website www.rbi.org.in under the head ‘Notification’) while fixing service charges, banks have been advised to ensure that the charges are reasonable and not out of line with the average cost of providing these services. Further, banks have been advised to identify basic services and the principles to be adopted /followed by them for ensuring reasonableness in fixing such charges. Banks are also advised to take steps to ensure that customers are made aware of the service charges upfront and changes in the service charges are implemented only with the prior notice to the customers.

FAN India’s rebuttal to point 2: Before coming to the points raised by you in response to our emails appealing to remove all bank charges for saving account holders, we would like to bring your attention to the following:

In your response, you have mentioned “we have not issued any specific instructions regarding” repetitively. As the highest regulatory body for the banks, RBI is accountable to the people of the nation. If a specific rule/policy/act of the banks is discriminatory and is of exploitative nature. Then it’s your rightful duty to look into the matter, rather than watching it silently and saying that “we have not issued any specific instructions” and banks have the freedom to decide the service charges. You have not issued any specific instructions to the banks, and that is exactly people are demanding you to make rules for service charges on banking services.

In your response, you have said that since 1999, scheduled commercial banks have given freedom to fix service charges. And then you have referred to Master Circular on ‘Customer Service in Banks’ issued vide DBR. No.Leg.BC.21/09.07.006/2015-16 dated July 1, 2015, that banks have been advised to ensure that the charges are reasonable and not out of line with the average cost of providing these services.

In the “Report of the Working Group to formulate a Scheme for ensuring the Reasonableness of Bank Charges” dated September 15, 2006, the RBI Working Group had concluded –

“the reasonableness of service charges of banks cannot be tested on the basis of cost as, in general, banks were not using cost to fix their charges…..A few banks that use ‘cost’ tend to offer ‘bundled’ products (accounts with add-on services) that require a higher level of average minimum balance maintained in the account and this methodology implies an element of financial exclusion (though not by design). The Working Group has, accordingly, recommended that the Reserve Bank may take suitable steps to determine and evaluate the costs to banks for providing basic services.”

When the working group has concluded that banks are not using cost to fix their charges and banks which provide bundled products are exclusionary in nature. Then, how is it that RBI is advising banks to ensure the charges should be reasonable and in line with the average cost of providing the services?

As per your guidelines, banks are advised to take steps to ensure that customers are made aware of the service charges upfront and changes are implemented with the prior notice. In RBI’s own pilot study more than 30 per cent of customers reported that information regarding service charges and fees was not shared by banks at the time of opening the accounts and more than 25 per cent of the respondents expressed their discontent over charges such as penalty on non-maintenance of minimum balance, cash deposit charges at home and non-home branches, cheque return charges (deposited by the customers) and for signature verification. Also, during our interaction with the people, what has come up is sending merely a SMS/Email is not fulfilling the basic purpose of customers having the right information about the new changes due to many reasons such as illiteracy, lack of knowledge of English language (banks’ default language for communication), lack of technological knowledge, mobile unfriendliness. There are numerous cases, especially among rural and illiterate people that by the time they came to know about the changes made by banks, various bank charges and penalties have reduced their savings drastically.

In the annexure-I “Recommendations of the Working Group to formulate a scheme for ensuring the reasonableness of bank charges” of the Master Circular on ‘Customer Service in Banks’ issued vide DBR. No.Leg.BC.21/09.07.006/2015-16 dated July 1, 2015, Working group has recommended For basic services rendered to a special category of individuals (such as individuals in rural areas, pensioners and senior citizens), banks will levy charges on more liberal terms than the terms on which the charges are levied to other individuals. After analysing the banks’ service charges, the situation is that apart from the requirement of the minimum balance in savings bank accounts and a penalty for not maintaining it, banks are charging all customers – rich and poor – alike.

Another recommendation in the same annexure says that while informing the customers about the new changes in bank charges, banks should provide an option to accept the change and if not accepted, to exit from the relationship with the bank. As per our analysis banks’ have not adopted this policy.

RBI’s response, point 3: In terms of para 6.7 of the above-mentioned circular, banks are required to put in place a system of online alerts for all types of transactions irrespective of the amounts involving usage of cards at various channels.

Point 4: Accordingly, with a view to ensuring reasonableness and equity in the charges levied by banks for sending SMS alerts to customers, banks are advised to leverage the technology available with them and the telecom service providers to ensure that such charges are levied on all customers on an actual usage basis.

FAN India’s rebuttal to point 3 and 4: You have mentioned about para 6.7 of the same Master Circular dated July 1, 2015, that banks are required to put in place a system of online alerts for all type of transactions irrespective of the amounts and to ensure the reasonableness and equity in the charges levied by banks for sending SMS alerts to customers, banks are advised to leverage the technology available with them to ensure that such charges are levied on all customers on actual usage basis.

Whereas, in reality, this is not followed by the majority of banks other than a few banks (Central Bank of India being one of them). Banks are charging all customers the same charges, irrespective of the number of SMS received by them. A person having rare transactions through his bank account and another person with 5-10 transactions daily are being charged the same amount by banks. This clearly shows that there is no reasonableness and equity in the charges based on actual usage.

RBI’s response, point 5: As regard penalty on non-maintenance of minimum balance in savings accounts, we have not issued any specific instructions prescribing the amount of minimum balance to be maintained in savings bank account since banks have the freedom to determine the quantum of minimum balance to be maintained by their depositors in savings bank account subject to conditions that:

1. a) At the time of opening savings bank accounts, banks should inform their customers in a transparent manner the requirement of maintaining a minimum balance.
2. b) Banks should inform, at least one month in advance, the existing account holders of any change in the prescribed minimum balance.

FAN India’s rebuttal to point 5: Regarding the penalty for not maintaining the minimum balance in savings accounts, you have said there are no instructions issued from RBI and banks have the freedom to decide the quantum of minimum balance to be maintained by account holders.

State Bank of India (SBI) started penalizing their customers for not maintaining the minimum balance of 2017 onwards. In 2017, the then SBI Managing Director Rajnish Kumar had said that SBI is going to raise Rs 2000 crore from the penalty for not maintaining a minimum balance, to cover the loss incurred due to linking of Aadhar and other reasons.

Clearly, this shows that burden of loss incurred to banks due to non-payment of loans by the corporate sector, rising provisions for NPAs and due to faulty government policies, is being transferred to depositors by imposing high charges on various banking services.

Furthermore, it is not possible to maintain a high amount of minimum balance for people from different sections and communities. Since the nationalisation of the banks in India, public sector banks (PSBs) have played an important role in the Indian economy, as a source of credit for common people as well as a safe place to keep the hard-earned money. With the change in the functioning style of banks, especially PSBs, the shift in focus from ‘serving the people’ to the absolute profit-making entity, is causing a lot of problems for common people. People are losing their savings through bank charges imposed on them.

5(b): Banks should inform, at least one month in advance, the existing account holders of any change in the prescribed minimum balance.

The reach of information on the changes made to the existing account holders is an important issue. RBI Working Group has recommended various steps for it, but banks have adopted sending SMS and Email as an escape route that is not an effective method for all people due to various technical reasons stated above in Point number 3 & 4.

RBI’s response, point 6: Further, levy of penalty on non-maintenance of minimum balance in the savings account is subject to the following conditions:

i) In the event of a default in maintenance of minimum balance as agreed to between the bank and customer, the bank should notify the customer clearly by SMS / email / letter etc. that in the event of the minimum balance not being restored in the account within a month from the date of notice, penal charges will be applicable.

ii) In case the minimum balance is not restored within a reasonable period, which shall not be less than one month from the date of notice of shortfall, penal charges may be recovered under intimation to the account holder.

iii) It should be ensured that the balance in the savings account does not turn into a negative balance solely on account of levy of charges for non-maintenance of minimum balance.

The above instructions are contained in paragraph 5.4 of our above-referred Master Circular on ‘Customer Service in Banks’.

FAN India’s rebuttal to point 6: Where RBI circular says that balance should not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance. But that is not the case with the majority of banks. The balance goes into negative due to the penalty for not maintaining a minimum balance. This is also happening as account holders do not know when their banks have started penalizing for not maintaining the minimum balance or raised the amount which needs to be maintained. And then when money is being deposited in the account by account holders or by the government in the form of direct benefit transfers, it gets adjusted with the negative balance. MNREGA workers are not getting their full wages because of the negative balance, informal sector workers are finding their small savings being reduced to zero or negative, students are paying penalty every month/quarter (as the case may be) as they can’t maintain minimum balance required by banks, urban poor and lower-middle-class people are paying heavy fines in the form of penalty for not maintaining minimum balance as they are not able to maintain minimum balance after taking care of their monthly expenses.

RBI’s response, point 7: There is a facility of Basic Service Bank Deposit Account (BSBDA) which does not have a requirement of any minimum balance and it is considered as a normal banking service available to all. Additional instructions on BSBDA are contained in para 4.1 and ‘Basic Savings Bank Deposit Account – Frequently Asked Questions’ given in Annex VII of our above-referred Master Circular on ‘Customer Service in Banks’.

FAN India’s rebuttal to point 7: It mentioned the facility of Basic Service Bank Deposit Account (BSBDA) which does not have the requirement of minimum balance. BSBDA accounts have their limitation in various forms. The number of debit transactions including RTGS / NEFT / Clearing / Branch cash withdrawal / transfer / internet debits / standing instructions / EMI, etc., is limited to 4 times in a month. The maximum balance in the account at a time and total amount deposited in a year in these accounts also has a limit. Additionally, the total money that can be transacted in a month through BSBDA accounts is also limited.

In the para 4.1 of the referred Master Circular on ‘Customer Service in Banks’, (vii) says that banks are free to evolve other requirements including pricing structure for additional value-added services beyond the stipulated basic minimum services. Whereas regarding BSBDA accounts, Query number 13, in Annex VII of the same Master Circular says “banks are required to put in place a reasonable pricing structure for value-added services or prescribe minimum balance requirements which should be displayed prominently and also informed to the customers at the time of account opening. Offering such additional facilities should be non-discretionary, non-discriminatory and transparent to all ‘Basic Savings Bank Deposit Account’ customers. However, such accounts enjoying additional facilities will not be treated as BSBDAs.”

On the one hand, the BSBDA guidelines say banks can provide additional value-added services beyond the stipulated basic minimum services. And then, on the other hand, it says accounts enjoying the additional facilities will not be treated as BSBDAs. Ultimately, resulting in a situation where BSBDA account holders either have to use the limited banking services as per BSBDA rules or if they opt for value-added services, their account won’t be in the BSBDA category.

RBI’s response, point 8: As regard number of free withdrawals from ATM, the query has been sent to our Department of Payment and Settlement System for examination and necessary action at their end with a request to advise the applicants directly.

FAN India’s rebuttal to point 8:  As regards to the number of transactions from ATMs, till November 2014, there was no limit on the number of transactions through ATMs from own bank’s ATM. Now with the new rules, there are limits on the use of own bank’s ATMs and other banks’ ATMs. As part of the digitalisation process in the banking sector, ATM services were introduced with the aim of reducing the burden on bank branches and to provide the choice to customers of having transactions as per their needs. When people have adopted this technological change, which was not easy for all customers, most of the banks have put a limitation on the number of free transactions (financial and non-financial) through ATMs.

The other important aspect about ATM charges is that there is no redressal mechanism if an ATM is not working or is out of cash, which forces people to use other banks’ ATMs, resulting in unnecessary charges.

Banks are having huge losses due to rising NPAs and provisions required for them. Despite having operational profit, 19 out of 21 public sector banks were in a loss in 2018 only because of increased NPAs and provisions kept for them. And the major chunk of total NPAs i.e. Rs 10,35,000 crores (as on March 2018) is issued to the corporate sector for different developmental projects. (Almost 50% i.e. Rs 4,98,000 crore is issued to the top 100 borrowers.) The demand to remove all bank charges for saving account holders comes from the basic understanding that- in the past when banks were not having a loss, they were either charging very less amount for some particular services or not charging at all. But now banks are shifting the burden of increased NPAs to the common people in the form of various bank charges.

It is unfortunate that the RBI, in its response tries to evade its responsibility as a regulator. We would like to remind the RBI that its course of following “forbearance” in the wake of 2008 global financial crisis and introducing stop-gap measures of restructuring loans through CDR, SDR, S4A, JLR etc., instead of taking timely actions to recover debts that escalated the crisis of NPA. Furthermore, it was RBI that directed the banks to keep 50-100% provisions for NPAs, recommended haircuts and write-offs. All these are factors that have plunged the banking sector into the crisis that it is facing today. Hence, RBI cannot sit back and let the banks fleece the poor for its wrongful lending policies.

Annexure-I
The email being sent to the RBI can be viewed at the home page of www.fanindia.net