RBI to cap bank charges and protect small savers

of banks, who have to pay exorbitant charges and penalties for basic services and pre-payment of loans, are in for some good news. The Reserve Bank of India (RBI) is considering a ceiling on such charges.

Worried by the refusal by some banks to rationalise charges despite several reminders, is now taking the bull by the horns.

For example, some banks charge as high as Rs 750 (plus taxes) for failure to maintain a minimum balance in savings accounts. Similarly, pre-paying home loans can attract a penalty of 2 per cent on the outstanding amount.

There’s more. Some banks charge a flat Rs 50 for demand drafts, even in rural areas where drafts are generally not in high denominations. Depositing cash at a branch other than the base branch is charged Rs 100, irrespective of the amount deposited. Some banks charge Rs 100 to issue duplicate bank statements.

At present, cash withdrawal from other banks’ beyond five transactions is the only service charge that has been capped at Rs 20. This was done by RBI last year, as banks charged as much as Rs 55 for cash withdrawal from non-base bank ATMs.

The central bank has referred the issue to a high-level customer committee, which was set up in June to look into the issue of customer services offered by banks. The committee, which is headed by former Securities & Exchange Board of India Chairman M Damodaran, will submit its recommendations in January.

The Damodaran committee has also been entrusted with a larger mandate of suggesting sweeping reforms. In an interaction with committee members, RBI Governor reportedly said the committee’s suggestions should encompass the needs of the next 10 years.

The move to cap charges is a significant shift in RBI’s stance of not involving itself in regulating fees and of individual banks. However, RBI now also feels that since banking is a highly regulated service industry with very stiff entry norms, customer service cannot be entirely left to market forces.

Rather, it is the regulator’s duty to protect small customers. “We will make it clear that such steps will be only for small savers and retail customers and not for corporate entities,” said a central bank official.

image
Business Standard
177 22
Business Standard

RBI to cap bank charges and protect small savers

Manojit Saha  |  Mumbai 



of banks, who have to pay exorbitant charges and penalties for basic services and pre-payment of loans, are in for some good news. The Reserve Bank of India (RBI) is considering a ceiling on such charges.

Worried by the refusal by some banks to rationalise charges despite several reminders, is now taking the bull by the horns.

For example, some banks charge as high as Rs 750 (plus taxes) for failure to maintain a minimum balance in savings accounts. Similarly, pre-paying home loans can attract a penalty of 2 per cent on the outstanding amount.

There’s more. Some banks charge a flat Rs 50 for demand drafts, even in rural areas where drafts are generally not in high denominations. Depositing cash at a branch other than the base branch is charged Rs 100, irrespective of the amount deposited. Some banks charge Rs 100 to issue duplicate bank statements.

At present, cash withdrawal from other banks’ beyond five transactions is the only service charge that has been capped at Rs 20. This was done by RBI last year, as banks charged as much as Rs 55 for cash withdrawal from non-base bank ATMs.

The central bank has referred the issue to a high-level customer committee, which was set up in June to look into the issue of customer services offered by banks. The committee, which is headed by former Securities & Exchange Board of India Chairman M Damodaran, will submit its recommendations in January.

The Damodaran committee has also been entrusted with a larger mandate of suggesting sweeping reforms. In an interaction with committee members, RBI Governor reportedly said the committee’s suggestions should encompass the needs of the next 10 years.

The move to cap charges is a significant shift in RBI’s stance of not involving itself in regulating fees and of individual banks. However, RBI now also feels that since banking is a highly regulated service industry with very stiff entry norms, customer service cannot be entirely left to market forces.

Rather, it is the regulator’s duty to protect small customers. “We will make it clear that such steps will be only for small savers and retail customers and not for corporate entities,” said a central bank official.

RECOMMENDED FOR YOU

RBI to cap bank charges and protect small savers

Retail customers of banks, who have to pay exorbitant charges and penalties for basic services and pre-payment of loans, are in for some good news. The Reserve Bank of India (RBI) is considering a ceiling on such charges.

of banks, who have to pay exorbitant charges and penalties for basic services and pre-payment of loans, are in for some good news. The Reserve Bank of India (RBI) is considering a ceiling on such charges.

Worried by the refusal by some banks to rationalise charges despite several reminders, is now taking the bull by the horns.

For example, some banks charge as high as Rs 750 (plus taxes) for failure to maintain a minimum balance in savings accounts. Similarly, pre-paying home loans can attract a penalty of 2 per cent on the outstanding amount.

There’s more. Some banks charge a flat Rs 50 for demand drafts, even in rural areas where drafts are generally not in high denominations. Depositing cash at a branch other than the base branch is charged Rs 100, irrespective of the amount deposited. Some banks charge Rs 100 to issue duplicate bank statements.

At present, cash withdrawal from other banks’ beyond five transactions is the only service charge that has been capped at Rs 20. This was done by RBI last year, as banks charged as much as Rs 55 for cash withdrawal from non-base bank ATMs.

The central bank has referred the issue to a high-level customer committee, which was set up in June to look into the issue of customer services offered by banks. The committee, which is headed by former Securities & Exchange Board of India Chairman M Damodaran, will submit its recommendations in January.

The Damodaran committee has also been entrusted with a larger mandate of suggesting sweeping reforms. In an interaction with committee members, RBI Governor reportedly said the committee’s suggestions should encompass the needs of the next 10 years.

The move to cap charges is a significant shift in RBI’s stance of not involving itself in regulating fees and of individual banks. However, RBI now also feels that since banking is a highly regulated service industry with very stiff entry norms, customer service cannot be entirely left to market forces.

Rather, it is the regulator’s duty to protect small customers. “We will make it clear that such steps will be only for small savers and retail customers and not for corporate entities,” said a central bank official.

image
Business Standard
177 22

More News

  • RBI permits banks to hire ex-officials for internal audit RBI permits banks to hire ex-officials for internal audit
  • Bandhan's first year
Widgets Magazine
Widgets Magazine
Advertisement

Upgrade To Premium Services

Welcome User

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

  • Access Exclusive content - articles, features & opinion pieces
  • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
  • Access to 17 plus years of content archives
  • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
  • End of day news alerts on 5 companies (via email)
  • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
 

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard