The one entity that we are supposed to trust with our hard-earned money is our bank. And, yet, in the past couple of months, you would have noticed newspapers headlines, WhatsApp messages and social media discussing how customers are robbed, hoodwinked or cheated by banks which have complete contempt for their largest stakeholders. The outpouring of public outrage ought to make the regulator and policy-makers sit up. But they have maintained an impervious silence. Public anger is concentrated mainly in three areas.
First, the discrimination between old and new borrowers for home loans: the difference in interest charged by most lenders is over 1%. This translates to a substantial burden for borrowers. Many of them are young people in their 30s, who have often struggled to pay back an education loan before buying a house. The difference in amounts repaid will run into lakhs of rupees over the repayment period. Banks have got away with such shameful discrimination for nearly a decade, only because the Reserve Bank of India (RBI) and the government turned a blind eye. Ordinary people, already burdened with debt, cannot spare the time to fight. Worse, RBI is complicit in allowing banks to extract a charge from borrowers every time there is a drop in interest rates.
The second big flashpoint for public anger is the decision to charge people for withdrawing their own money. These charges are hefty. Many banks plan to charge as much as Rs150 after every fourth or fifth withdrawal. The government’s studied silence over the anger spilling out on social media almost suggests a quiet deal to allow banks to recover their losses on the extra time and effort made during demonetisation. But it is deplorable that these charges will be imposed without any assessment of the situation on the ground. Consider this:
• Banks continue to run short of currency stocked in ATMs and cap withdrawals. So, a person planning to limit cash withdrawals to free ones will have to make repeated transactions because the bank will not dispense the amount required. This is especially true over weekends. At the very least, a charge on withdrawals must be preceded by a guarantee of unlimited cash available at ATMs and appropriate software that monitors when the bank fails to dispense the amount sought.
• Secondly, ATMs across the country continue to be out of cash. We have received dozens of complaints, even from city centres. RBI has not bothered to respond, or even acknowledge, that it is aware of the problem of continued cash shortage. Our columnist, Dr Yerram Raju, has written a detailed account of the shocking situation in Hyderabad in our online edition
• Here is an eye-opening response to Dr Raju’s article, by a former deputy managing director of the State Bank of India (SBI). He says, “Non- or malfunctioning ATMs is an ailment affecting the entire network. It is not geography-specific. Though we are told that required changes to the hardware have been carried out, the factual status seems to be different. Supply or flow of currency to the branches is yet to happen. I am not sure who is misrepresenting facts—the RBI or the top management of the banks. At the granular level, the operating staff is faced with a challenge of taking care of customer service without adequate support in the context of currencies.”
• The situation at SBI, which levies the heftiest charges on customers also, prevails at all nationalised banks which account for over 45% of our banking system. RBI’s own study in 2016 showed that 30% of bank ATMs are non-functional (this was before the note-ban). This number would have increased substantially after the note-ban. In response to a Moneylife survey, angry customers told us that they were forced to use ATMs of private banks or go to the branch, because their own ATMs did not work. RBI ignored these complaints.
• Two years ago, when complaints about bank charges had caused anger, Moneylife Foundation showed RBI officials the prototype of an app that would track non-functional ATMs through user-feedback and monitor action. RBI simply ignored our proposal. And, yet, it is sitting on over Rs3,500 crore of depositors’ money to be used for such services that it can itself initiate.
• Clearly, RBI and banks are betting on the fact that consumer anger will fizzle out and they will learn to live with the charges, as they have ever since banks began to increase charges in a cartelised fashion (SMS charges, debit card charges, non-home branch charges, etc).
A third source of anger is the lack of any engagement by policy-makers—whether it is RBI or the finance ministry as owner of public sector banks (PSBs). It is almost as though the government has given a carte blanche to bankers to fleece depositors, not only through frivolous charges but also through the rampant mis-selling of insurance, structured derivative products (sold without explaining the risk) and mutual funds. The methods of cheating, especially for single-premium insurance policies, are now a template. Yet, banks, as well as the banking ombudsman, reject complaints outright. Most often, the targets are senior citizens, often people in their late 70s and 80s, who end up losing precious savings.
On 18th March, Moneylife Foundation called a group of NGO activists and analysts to discuss bank charges and sent a joint memorandum to the RBI governor, Dr Urjit Patel, seeking action. These include: the Mumbai Grahak Panchayat, All India Bank Depositors Association, Consumer Voice, Citizen Consumer and Civic Action Group (CAG), Chennai, as well as leading financial writers including Dhirendra Kumar, founder of Value Research, Harsh Vardhan Roongta, founder of Apnapaisa.com, RN Bhaskar, editor and columnist, and others. More importantly, the mammoth All India Bank Employees Association (AIBEA) and the Central Bank Employees Association also supported the stand. This was followed up by an online petition which had attracted over 22,000 signatures in just five days. (Please sign the petition if you feel strongly about bank charges: https://www.change.org/p/governor-rbi-finance-ministry-stop-banks-fleecing-depositors
Apart from the issues that I have already highlighted in previous columns regarding floating loans, unfair and one-sided agreements and the need to implement the consumer charter, the petition made a strong case for allowing seamless migration of bank accounts (along with all the standing instructions for direct debits to pay loan instalment, utility bills, investments, etc). Today, technology makes this feasible and it will ensure that banks fight to retain customers, rather than allow them to be exploited by cartelised charges.
When policy-makers decided not to interfere with fixation of bank charges, they expected competition to keep a check on banks. However, payroll accounts and the needless bureaucracy around account migration has tied down consumers and killed any semblance of competition. The memorandum also demanded that bank charges must be transparent. Dhirendra Kumar says that we entrust our money to banks for safe custody. They should not be allowed to debit any charges from our account, howsoever small, without explicit consent and two-step confirmation through an OTP system.
Please notice that banks send you a text message for every transaction, and extract a quarterly charge for it; but these do not include debits by the banks for any late payment fees, interest, or account management charges of the type that HDFC Bank has been appropriating by stealth. The point is simple: Banks cannot take advantage of the fact that they have custody of our money, to debit any of it without our express sanction.
Similarly, banks cannot, unilaterally, change the terms of their original loan agreement by holding borrowers to ransom and extracting charges from them to reduce interest. It makes a complete farce of the concept of ‘floating rates’. All these actions would be struck down as unconscionable if consumers are able to come together and go to court in a class action suit.