Banks should pass on lower costs to customers: RBI governor

Reserve Bank of India (RBI) Governor D Subbarao said banks must pass the benefit of lower costs from technology-based products and services to customers.

“I was surprised to note that transfer of funds from one branch of a bank to another, both under the core banking system, entailed a service charge for the remitting customer. It does not make sense that the charge for such funds movement within a bank is much more than for the inter-bank fund transfers,” Subbarao said.

Delivering the keynote address at an awards function held by Institute for Development and Research in Banking Technology (IDRBT) here on Monday, he warned that banks faced the risk of losing customer trust by imposing charges not commensurate with the cost of the service provided.

Subbarao urged financial sector leaders to take advantage of new technologies saying they would reduce costs of financial transactions, improve allocation of financial resources and increase competitiveness and efficiency of financial institutions.

In this context, he said banks could now take advantage of the expanded reach of telecom. According to Subbarao, mobile phone users belong to all strata of society and the phone’s integrated chip could function as a multi-application smart card. “This holds substantial promise as the delivery vehicle of the future.”

Subbarao, however, emphasised that while adopting new technologies, banks should ensure that adequate security controls were in place.

Stating that IDRBT’s role had extended beyond research over the years, he said a committee headed by C Rangarajan was looking into redefining the institute’s role. Recommendations from this committee were anticipated soon, he said.

IDRBT Director B Sambamurthy said the institute, which was focusing on developing intellectual capital in the field of banking technology, would double its academic strength in the near future.

Later, the RBI governor presented the IDRBT Banking Technology Awards 2008 to Corporation Bank, Punjab National Bank, State Bank of India, Karur Vysya Bank, ICICI Bank, HDFC Bank and Kotak Mahindra Bank.