 "No running away from costly banking")
Commenting on the Nachiket Mor committee report report on financial inclusion released last week, former State Bank of India chairman Pratip Chaudhuri told Business Standard that the committee's recommendations would not become a reality as long as banks insist on minimum balances in savings accounts and levy account maintenance charges. "First, these things should be abolished, which will incentivise individuals to open a bank account," Chaudhuri said.
However, banks are in no mood to relent. Reason: Their cost of funds has risen over the past year. At present, the cost-to-income ratio for most banks stands at 45-50 per cent. This means, expenses eat half of banks' income, making banking a costly affair. As a result, most private and public-sector banks pass on some of the burden to customers by charging more for various services. While most banks increased deposit rates by 25-50 basis points (bps) on certain maturities, they also raised lending rates but by small quantum, of 10-20 bps.
Over the past year, banks increased charges on other services as well. ICICI Bank and Axis Bank charge Rs 15 per quarter for SMS alerts. HDFC Bank, which opted for InstaAlert service via SMS, charges Rs 15 a quarter for salary or savings accounts, while current account holders are charged Rs 25. Despite Kotak Mahindra Bank reducing SMS charges from Rs 16 to Rs 10 a month (Rs 30 a quarter), it is still higher than that of other banks. YES Bank, which offers the highest interest on saving accounts, charges Rs 30 a quarter for saving account holders.
Punjab National Bank (PNB) has revised the cash deposit charges at all branches within the same clearing centre and city. Since April 2, 2013, customers have been charged Rs 1 per Rs 1,000 or a minimum of Rs 25 per transaction on select products, including savings bank account.
Then, after the Bangalore ATM attack on November 19 last year, the issue of security at ATMs came to the fore. A working group was set up to assess the cost implication of enhancing security at ATMs. The Indian Banks' Association (IBA) suggested a revision in ATM transaction charges to be able to provide more, better security to customers.
Bankers have proposed the rate for each ATM transaction (interchange fee or charge) be raised from Rs 15 to Rs 18. Interchange fee implies a charge paid by a bank to another for accepting card-based transactions. Usually, it's a fee that an acquiring bank pays the issuing bank. At present, there is no cap on free transactions at own-bank ATMs, while customers can use other banks' machines up to five times a month without any extra cost.
Besides beefing physical security at ATMs, banks have started taking steps such as improving electronic surveillance, including remote monitoring. Some have also begun partial shutdown of ATMs at night in areas where usage is low. Several state governments have also asked banks to ensure round-the-clock guards at ATMs, which is a costly affair at Rs 30,000-40,000 a month. Plus, there will have to be enough transactions to justify that expense. For banks, servicing a customer at a branch is the most expensive, followed by ATM and then net banking. Customers will have to share the cost burden, say experts.
"Apart from the cost of security at ATMs, costs caught up with banks also due to some Reserve Bank of India (RBI) guidelines like ATMs cannot be used for advertising. This limits revenue generation from ATMs," says a senior banker. Banks do not have the freedom to display advertising material for non-banking products within the ATM sites. They can advertise only their own products.
While terming it inevitable, experts say the world over, customers are charged for most banking services. Experts say that in the US, banks charge a fee for ATM transactions made at rival banks. Sometimes customers are charged by both the rival and their own bank for the same. There is also a fee for refusing services due to insufficient funds or having used the daily limit, and also for checking account balance at other banks' ATM. It's only that Indian banks' customers are used to free or low-cost structure for banking facilities. And, hence, a higher fee comes across as a shocker.
At the same time, some opine that something as basic as ATM transactions need not be charged. Other facilities such as mobile or net banking may be charged as additional and high-tech facilities for transactions. "This is largely because banks hardly make any money on net or mobile transactions. For instance, if one books movies tickets online, while the ticket aggregator could earn as much as five per cent, banks make less than a per cent or sometimes even less than 0.5 per cent," says a public sector banker.
When ATMs were introduced, banks discouraged customers from banking at their branches. A couple foreign and private banks, say experts, had even levied Rs 50-100 as branch banking fees on customers, say bankers. Then banks provided additional facilities such as mobile and net banking, which made banking further easy. And now they are proposing charges on ATM transactions. Are banks trying to dissuade customers from regular banking, at will?
A senior banker reasons that even now, there are charges applicable after five transactions for other bank ATMs. So, it is not that a new cost structure is being put in place. Agrees Adhil Shetty of BankBazaar.com: "This is not a move to dissuade customers from easy banking. Banks are only trying to compensate for the high charges they are facing." Shetty adds in the mid-2000s, banks had completely removed charging customers transacting at other bank ATMs. However, given the cost they are facing, it doesn't make sense to service outside customers for free. Doing so, however, would be unfair from the viewpoint of a customer, who is used to getting free service. "Rise in banking charges in a country like India will neither benefit customers nor banks," says V N Kulkarni, chief counsellor at Abhay Debt Counselling Centre of Bank of India.
Many people withdraw small amounts every week or even every day. There could also be some who have income from multiple sources and, hence, might be forced to withdraw as and when they receive funds in their account. Such individuals will be charged unnecessarily, Kulkarni points out. He adds that if ATM charges are increased, "then such customers will throng bank branches, thus making it expensive for banks, which I don't think banks have factored in".
One option for banks could be not counting for all kinds of ATM transactions to be charged. For instance, checking balance. Right now, each time you use an ATM for any service - cash withdrawal, cash deposit, checking account balance, etc - it is considered a transaction. The senior banker agrees but explains there is some cost involved in offering any service and somebody has to pay for it. As for customers, they could shift to bank(s) levying lower charges. However, since most banks have increased charges, it might not be easy. Charges at public sector banks may be lower than private and foreign banks. Try moving to net banking, as that's the cheaper option. Also, close savings accounts you don't use.
There is still room for hope. Last week, RBI Deputy Governor K C Chakrabarty said IBA's proposal to charge for ATM withdrawals would be 'ridiculous' and 'illogical'.
However, banks are in no mood to relent. Reason: Their cost of funds has risen over the past year. At present, the cost-to-income ratio for most banks stands at 45-50 per cent. This means, expenses eat half of banks' income, making banking a costly affair. As a result, most private and public-sector banks pass on some of the burden to customers by charging more for various services. While most banks increased deposit rates by 25-50 basis points (bps) on certain maturities, they also raised lending rates but by small quantum, of 10-20 bps.
Over the past year, banks increased charges on other services as well. ICICI Bank and Axis Bank charge Rs 15 per quarter for SMS alerts. HDFC Bank, which opted for InstaAlert service via SMS, charges Rs 15 a quarter for salary or savings accounts, while current account holders are charged Rs 25. Despite Kotak Mahindra Bank reducing SMS charges from Rs 16 to Rs 10 a month (Rs 30 a quarter), it is still higher than that of other banks. YES Bank, which offers the highest interest on saving accounts, charges Rs 30 a quarter for saving account holders.
Punjab National Bank (PNB) has revised the cash deposit charges at all branches within the same clearing centre and city. Since April 2, 2013, customers have been charged Rs 1 per Rs 1,000 or a minimum of Rs 25 per transaction on select products, including savings bank account.
Then, after the Bangalore ATM attack on November 19 last year, the issue of security at ATMs came to the fore. A working group was set up to assess the cost implication of enhancing security at ATMs. The Indian Banks' Association (IBA) suggested a revision in ATM transaction charges to be able to provide more, better security to customers.
Bankers have proposed the rate for each ATM transaction (interchange fee or charge) be raised from Rs 15 to Rs 18. Interchange fee implies a charge paid by a bank to another for accepting card-based transactions. Usually, it's a fee that an acquiring bank pays the issuing bank. At present, there is no cap on free transactions at own-bank ATMs, while customers can use other banks' machines up to five times a month without any extra cost.
Besides beefing physical security at ATMs, banks have started taking steps such as improving electronic surveillance, including remote monitoring. Some have also begun partial shutdown of ATMs at night in areas where usage is low. Several state governments have also asked banks to ensure round-the-clock guards at ATMs, which is a costly affair at Rs 30,000-40,000 a month. Plus, there will have to be enough transactions to justify that expense. For banks, servicing a customer at a branch is the most expensive, followed by ATM and then net banking. Customers will have to share the cost burden, say experts.
"Apart from the cost of security at ATMs, costs caught up with banks also due to some Reserve Bank of India (RBI) guidelines like ATMs cannot be used for advertising. This limits revenue generation from ATMs," says a senior banker. Banks do not have the freedom to display advertising material for non-banking products within the ATM sites. They can advertise only their own products.
While terming it inevitable, experts say the world over, customers are charged for most banking services. Experts say that in the US, banks charge a fee for ATM transactions made at rival banks. Sometimes customers are charged by both the rival and their own bank for the same. There is also a fee for refusing services due to insufficient funds or having used the daily limit, and also for checking account balance at other banks' ATM. It's only that Indian banks' customers are used to free or low-cost structure for banking facilities. And, hence, a higher fee comes across as a shocker.
At the same time, some opine that something as basic as ATM transactions need not be charged. Other facilities such as mobile or net banking may be charged as additional and high-tech facilities for transactions. "This is largely because banks hardly make any money on net or mobile transactions. For instance, if one books movies tickets online, while the ticket aggregator could earn as much as five per cent, banks make less than a per cent or sometimes even less than 0.5 per cent," says a public sector banker.
When ATMs were introduced, banks discouraged customers from banking at their branches. A couple foreign and private banks, say experts, had even levied Rs 50-100 as branch banking fees on customers, say bankers. Then banks provided additional facilities such as mobile and net banking, which made banking further easy. And now they are proposing charges on ATM transactions. Are banks trying to dissuade customers from regular banking, at will?
A senior banker reasons that even now, there are charges applicable after five transactions for other bank ATMs. So, it is not that a new cost structure is being put in place. Agrees Adhil Shetty of BankBazaar.com: "This is not a move to dissuade customers from easy banking. Banks are only trying to compensate for the high charges they are facing." Shetty adds in the mid-2000s, banks had completely removed charging customers transacting at other bank ATMs. However, given the cost they are facing, it doesn't make sense to service outside customers for free. Doing so, however, would be unfair from the viewpoint of a customer, who is used to getting free service. "Rise in banking charges in a country like India will neither benefit customers nor banks," says V N Kulkarni, chief counsellor at Abhay Debt Counselling Centre of Bank of India.
Many people withdraw small amounts every week or even every day. There could also be some who have income from multiple sources and, hence, might be forced to withdraw as and when they receive funds in their account. Such individuals will be charged unnecessarily, Kulkarni points out. He adds that if ATM charges are increased, "then such customers will throng bank branches, thus making it expensive for banks, which I don't think banks have factored in".
One option for banks could be not counting for all kinds of ATM transactions to be charged. For instance, checking balance. Right now, each time you use an ATM for any service - cash withdrawal, cash deposit, checking account balance, etc - it is considered a transaction. The senior banker agrees but explains there is some cost involved in offering any service and somebody has to pay for it. As for customers, they could shift to bank(s) levying lower charges. However, since most banks have increased charges, it might not be easy. Charges at public sector banks may be lower than private and foreign banks. Try moving to net banking, as that's the cheaper option. Also, close savings accounts you don't use.
There is still room for hope. Last week, RBI Deputy Governor K C Chakrabarty said IBA's proposal to charge for ATM withdrawals would be 'ridiculous' and 'illogical'.