RBI pushes banks to slash retail charges, putting billions in fees at risk

In recent weeks, Reserve Bank of India officials have conveyed to banks that it wants a reduction in service charges, including those for debit cards, minimum balance violations and late payments

The Reserve Bank of India (RBI) has urged banks to reduce fees on select consumer products, a move that could affect billions of dollars in revenue that banks earn from service charges, Bloomberg reported. 

The RBI has recently told banks that it wants lower service charges on items such as debit cards, late payments, and minimum balance violations. 

The push comes as Indian banks have increased their focus on retail lending, following losses from bad corporate loans in past years. Growth in personal loans, car financing and small business loans has made retail banking profitable. However, this rapid expansion has also drawn the attention of the regulator about fairness and customer impact, Bloomberg reported.   

 

Focus on low-income customers

The central bank is particularly concerned about fees that hit low-income customers hardest in the world’s most populous nation. The RBI has not set a specific range for charges, leaving banks some flexibility. 

There are no official limits on surcharges. Processing fees for retail and small business loans usually range from 0.5 per cent to 2.5 per cent. Some banks cap home loan fees at 25,000 rupees ($285), according to BankBazaar, an online financial marketplace.

Bank fee income has started to recover this financial year after a slower growth. In the quarter ending June, fee income rose 12 per cent to about 510.6 billion rupees compared with the same period last year, up from 6 per cent in the previous quarter, India Ratings & Research data shows, as cited by Bloomberg.

 

Wide variations draw RBI attention

The Indian Banks’ Association is also talking with banks about more than 100 retail products that could come under RBI review, the news report said. The central bank has noticed large differences in fees charged to different customers for similar products, raising concerns about fairness.   

 

RBI Guv urges banks, NBFCs to improve service

In March this year, RBI Governor Sanjay Malhotra criticised banks and non-banking financial companies (NBFCs) for the rising number of customer complaints in recent years. He urged these institutions to enhance their services and resolve grievances within a set timeframe. Malhotra also suggested that senior executives, including MDs and CEOs, dedicate time to this issue at least once a week. 

Highlighting the concern, he shared that complaints under the RBI’s Integrated Ombudsman Scheme have grown at an average rate of nearly 50 per cent per year over the past two years, reaching 934,000 in 2023-24. The number of complaints handled by the RBI Ombudsman rose 25 per cent, from about 235,000 in 2022-23 to nearly 294,000 in 2023-24. 

Malhotra also noted that in FY24, the 95 scheduled commercial banks received more than 10 million complaints from customers. “If we include complaints from other RBI-regulated entities, the total number would be even higher,” he said.