Many of us won’t forget a presentation by Ravi Subramaniam, ex-banker and author of several thrillers set in banking. His book, If God Was a Banker, opened our eyes to the millions that Citibank probably earned on ‘Citibank Suraksha’, an insurance that was quietly loaded on to consumers, without their consent, in the 1990s. (The book, of course, has a fictionalised account—so any similarities that I have found with Citibank are purely coincidental.) Although there was a media furore, the bank in the book only reversed charges if a customer called to complain. Apparently an overwhelming majority didn’t. The bad press didn't matter as long as the bottom-line was fattened and it was, in a big way.
Two decades later, HDFC Bank faces a similar controversy over its Rs110 ‘account management’ fee charged to customers without their consent. A furore ensued and has led to some change. But not enough – it remains an ‘opt-out’ service. HDFC’s head honcho, Aditya Puri, who was coincidentally with Citibank during the 1990s, will be laughing in his Bank and probably snag another trophy or two as the ‘best banker’
In HDFC Bank’s case, at least the shareholders probably approve of what the bank is doing. But what about State Bank of India (SBI), owned by the government of India? Its chairperson is busy recovering both the cost of Jan Dhan accounts (as she has admitted) and the Bank’s bad loans from its hapless depositors, by levying hefty charges on a range of poor services.
Earlier this month, SBI launched its ‘Unnati’ card, which will drag its customers into the heaven of “digital transformation through cashless transactions.” Meanwhile, chairperson Arundhati Bhattacharya has announced that the Unnati card will be issued to anyone who has a cash balance of Rs25,000 in his account (including Jan Dhan account-holders) without going into their credit history. Ms Bhattacharya portrays this as a selfless national service. It will cater to the credit card requirements of new users, especially those without any prior credit history, she said, adding, “we must credit empower our citizen and this is an initiative towards that.” We have a different interpretation. SBI is luring unsuspecting users. For this, it is offering ‘zero annual fees’ for four years.
This brings us back to Ravi Subramanian’s talk. One big insight from him was how every action of card-issuing companies that appears to benefit a card-holder is actually geared to improve its own revenues. It is meant to encourage you to spend money that you don't have and cannot repay at the end of the month—so you roll it over at a usurious interest rate. When an issuer upgrades your card—silver to gold, or gold to platinum—it is rarely because you are a good borrower (who diligently clears all dues at the end of the credit period), but because the bank earns a higher commission. In fact, credit card issuers love customers who roll their credit and pay the minimum dues. Those who pay up on time are a cost and a burden. So let’s examine SBI’s generous Unnati offer more closely.
SBI’s ‘zero’ annual fee is an eyewash. What the card-holder needs to know is what interest SBI will charge and whether there are other hidden charges and costs. At the moment, SBI has among the highest charges for a slew of banking services, including minimum balance, cheque leaves, drafts, etc. In fact, its charges are often higher than those of private banks, without even the excuse of offering better service and ambience.
Secondly, SBI is already hiking costs, even before the Unnati card hits the market. On 4th April, political analyst and doctor, Dr Sumanth Raman, tweeted, “SBI Cardholder, w.e.f. 1st April 17, Rs100 will be charged for payments made thru cheque of up to Rs2,000.” This is a charge waiting to hit the Unnati card-holder whose minimum payments may be below Rs2,000. Of course, SBI’s excuse is that it wants them to be part of national digital transformation, or be punished.
Thirdly, SBI’s big push to increase the issue of cards and collections will raise funds to buy out General Electric, its long-time partner in the credit card business. By giving credit cards to every depositor who has 25,000 in her bank account, SBI expects a 300% growth in the card business in one year. If plenty of these customers, with no previous knowledge of the high interest credit card business, fall for the high-decibel, heart-tugging marketing (remember MasterCard’s ‘Priceless’ campaign?), it will mean big bucks for SBI.
Fourthly, SBI simply cannot offer credit cards to all those who have Rs25,000 in their account. The Reserve Bank of India (RBI) rules clearly require it to “ensure prudence while issuing credit cards and independently assess the credit risk while issuing cards to persons, especially to students and others with no independent financial means.” So, hopefully, its claims are more gimmicky than real.
Credit History for Whose Benefit?
The SBI chairperson told a newspaper, “Presently, lack of credit history has been a challenge in increasing the card penetration in the country. In such a scenario, this card is likely to facilitate in generation of credit history for new users, which will help bringing them into organised financial stream.” This is an extraordinary assertion. India is not Europe or the USA, where it is hard for people without a credit history to get a credit card. Nowhere does the RBI’s master circular mandate a credit history requirement for issuing new credit cards. On the contrary, the entire Jan Dhan drive was triggered by the fact that India has a huge unbanked population with no access to formal funding, and hence no credit history.
Indeed, our credit bureaus are only helping lenders. It is almost impossible for a credit defaulter in India to get a loan, barring rare exceptions by finance companies. Many defaults date back to 2005 or earlier when people were clueless about the consequences of being listed as a defaulter. Even today, most people become aware about credit scores only when they are refused a loan. No lender offers better terms, or lower interest, to good borrowers with a high credit score as a matter of right. Even when it comes to resetting interest downwards on their home loans, lenders will do their best to extort a charge unless the borrower is savvy enough to haggle and threatens to switch to another lender. Here, too, most borrowers are unaware that the bank knows that a high credit score will get them a good deal with a new lender.
RBI, and the cartel of banks, are completely uninterested in educating consumers about these rights or the importance of credit scores. I wrote to three of the four credit bureaus this week to check if they are aware of lenders who offer a better deal to borrowers. Two replied. They were unaware of any such benefits off-hand and offered to get back. Several months ago, I wrote about how Bank of Baroda was the only bank to frame an official policy wanting to introduce lending rates based on credit scores. We have not heard of any customer getting such an advantage.
All this only goes to show that SBI chairman’s benevolence has everything to do with the Bank’s bottom-line rather than any concern about its new card customers who may end up getting unnecessarily indebted. A consumer website puts it beautifully when it says, “Once you enter the world of credit cards, it becomes tantalisingly easy to buy today what you can’t afford tomorrow.” But lenders and governments have a nice way of blaming individual greed for running up debt. That is why many borrowers in developed countries end up seeking psychiatric help to deal with addiction to credit-card spending.
With RBI shutting its doors to any feedback and communication and the bank cartel being given full liberty to impose charges at will, we are fast headed to the bad old days of 2004-06 when bank excesses and shady marketing pushed millions into needless debt.