A retrograde move

The recent decision of several leading Indian banks including State Bank of India, the public sector banking behemoth, to levy charges on transactions at bank branches paints a contrasting picture. The Narendra Modi government at the Centre has been pushing for ‘banking for all’ since it assumed charge in the middle of 2014.

It launched Pradhan Mantri Jan-Dhan Yojana (PMJDY) to bring the unbanked sections of society into the banking fold. The initiative was a huge success and banks opened a whopping 28 crore accounts under the scheme till last month.

Besides, the government embarked on a mission to promote digital economy after its demonetisation exercise carried out in November and December last year, pushing the country into severe cash crisis. Banks also joined hands with the government on the cashless initiative as it would help them save on transaction costs.

But the very purpose of these initiatives will be defeated if the banks go ahead with their decision to charge cash withdrawals and deposits at bank branches. Such a move will render owning a bank account burdensome for many people.

Interestingly, the charges are not in small amounts. HDFC Bank customers will have to cough up Rs 150 plus taxes for every cash deposit and withdrawal after four free transactions in a month. ICICI Bank, the country’s largest private bank, also offers four free transactions, but collects Rs 5 per thousand rupees on all transactions thereafter.

But SBI, the country’s largest lender, went a step further and restricted free cash deposits and withdrawals to just three. Any more transactions thereafter will attract Rs 50 each time from April 1. It also brought back minimum average balance charges after a gap of five years – a move which will impact its massive customer base of 31 crore.

The furore over these charges is understandable. No one wants to lose hard-earned money for merely depositing in or withdrawing cash from a bank account. That appears absurd for many. More so for Indians, who are globally renowned for their frugality.

However, it looks like banks are trying to increase income from such charges to tide over the challenges posed by burgeoning non-performing assets (NPAs) or bad loans. The NPAs of all the private and public sector banks ballooned to Rs 6.97 lakh crore as of December 2016, taking a significant toll on the banks’ bottom line.

For many banks, fee income which includes transaction charges comes as godsend opportunity to reduce overhead costs and, at the same time, improve their profitability.

But, as bank official points out, there is no clarity for the banks on how to push digital transactions which invariably reduce financial burden on the banking system. The recent decision by SBI and other banks on charges stems from lack of clarity.

It’s a fact that banks get decent income through fees and charges. But they should keep in mind that such charges will discourage people from using banking system. Instead, they will hoard cash at home, leading to spurt in cash transactions!