Banks will charge for better services

I had transferred some money to the bank account of my son, studying abroad. When I asked him if he had received the money, he said he would have to visit the bank's ATM to check. I was surprised to learn his bank hadn't provided an SMS alert facility. I asked him to check the balance through their mobile app. My son said according to the bank's rule, the mobile app can be made operational only three months after opening the account and on personally visiting the bank branch. Although he had completed three months, he did not get the time to visit. He also told me he would withdraw cash only from the bank's own ATM, as there were stiff charges otherwise. I found all this very surprising, as my son is studying in Helsinki.

After this, I resolved not to take Indian banks' services for granted. This was put into context when I was involved in a conversation with a journalist regarding the justification behind banks charging Rs 850 for inadvertent bouncing of cheques.

This is among a series of similar conversations that I increasingly seem to be having with journalists, for SMS alerts or for maintaining minimum balance on a monthly basis rather than quarterly or for depositing cash in your account in a non-home location or charging you for withdrawing cash at your own bank's ATM. The last one is still in the proposal stage.

In an attempt to acquire consumers, banks have been providing a lot of technology-enabled services, which used to be offered free. Therefore, there is now resistance when banks want to charge for these services. Under any other circumstances, consumers would have shrugged their shoulders and paid the high charges, like they do for a host of other services.

As the character playing a top-shot banker in the Bollywood blockbuster Dhoom 3 says, "We are bankers; everybody hates us." This negative perception is perhaps justified, as most banks still don't treat consumers fairly. Charging differential rates from old home loan consumers and new loan consumers is one example.

Meanwhile, banks' cost structures are clearly under pressure. Changes in regulations and the imminent enforcement of some long-standing regulations are pushing up the cost for banks, apart from the general cost inflation.

Think of the interest on savings bank accounts as one example. From calculating interest on the minimum balance between the 10th and the last day of a month, it is now calculated on a daily basis and the rate, too, has gone up.

The older method meant banks effectively paid around 1.50 per cent against the nominal rate of 3.50 per cent then. Now, even the nominal rate ranges from four cent to 7.50 per cent in some cases.

This has significantly increased the cost of funds for banks. Technology and competition has made products such as fixed deposits linked to savings bank products a standard feature than a premium one. Then, there are a host of old regulations that were blithely being ignored but it might no longer be possible to do so. All this pushes up costs significantly.

High earnings from distributing insurance products have already slowed and threaten to decrease if banks are forced to become brokers. The L-word (liability) looms on the horizon as banks are justifiably being forced to be more accountable for their actions, whether to buyers of third-party products through them or to victims of online or credit card frauds.

My son finally started using the mobile app of his Finnish bank and said it was almost up to the 'Indian standards' he was used to. It was a pleasure hearing that the service standards in a developed country were being compared with those of India. In theory, to maintain these levels of service it would be justified for banks to increase their service charges in line with the increase in costs. But they clearly have an issue in terms of the fairness of their consumer service and need to work on that urgently.

Very few people agree with Oliver Wendell Holmes who reportedly said: "I like to pay taxes. With them, I buy civilisation." Even fewer are likely to say: "I like paying bank charges. With them, I buy better service."

The writer is CEO, Apnapaisa.com