Banks must not play with depositors’ loyalties

The late Savak Tarpore, regarded by many as one of the greatest central bankers of India, once put on an old, torn shirt and walked into a bank branch in South Mumbai to check for himself the quality of service offered across bank counters. Years later, he recounted the experience to one of the writers here – he was virtually pushed out, threatened with physical assault and warned never to enter the branch again. The experience led Tarapore, who was the deputy governor of the Reserve Bank of India in the1990s, to argue forcefully that banks in India suffer from an attitudinal problem of hostility towards the common man.

It is this very attitudinal problem that is on display in the move by several banks to charge fees and penalties for transactions that exceed a specified number. Various depositor associations are meeting to find out how they can oppose what essentially (and admittedly) are penalties – the precise term used by the State Bank of India (SBI) – on depositors withdrawing or depositing their own money at a place and time of their choosing.

The charges will be levied on transactions beyond four or five free withdrawal/deposit transactions every month, and many banks seemed to have simultaneously warmed up to the idea and want to implement it beginning April 1. What this presents is a picture of banks standing together in conflict with ordinary citizens, an image that hardly does credit either to the banking system, particularly the large PSU banks,  or the government, so soon after all the hardships caused by demonetisation.

It is quite likely that the levies will be watered down or even withdrawn, at least by the public sector banks, with reports that the government has asked the leader of the pack, the SBI, to reconsider the move. But the proposals themselves, the way they have been presented and the justification offered for these fees by the bank CEOs give some interesting insights into the alternate universe in which the sector leaders appear to live and operate. The words, the terminology, the explanations and the language in general reflect the inner contempt with which ordinary depositors are held by the banking world.  

One of the reasons proffered for levying charges to discourage customers from interfacing with banks and their teller machines is the simple one that banks are not charities and that they must seek a return for their shareholders and recover their costs, forgetting the elementary fact that the money being so described here is not the banks money at all.

In fact, the very existence of the bank depends on the trust of depositors who are the reason why the bank is business.  It is pertinent to bring to the attention of our bank leaders the simple statement made by the late M R Pai of the All India Bank Depositors Association – that it is depositors who are the real owners of the banks, as without depositors, there would be no banks.

In India, household sector deposits made by individuals, businessmen, traders, professionals, trusts, self-help groups etc. account for more than 60 per cent of the total deposits with banks. In sum, the bulk of the money of the people of India provides the fuel for the banking industry to exist and run. Of these, many would have deposit balances beyond the Rs.25,000 required to escape (in the case of SBI) withdrawal penalties from SBI ATMs.

But an even larger number of accounts will be of those who maintain less than this balance. This makes the poorest and the most vulnerable who probably have only hesitantly adopted banks, liable to pay penalties for withdrawing or depositing repeatedly.  “We do not see there is a requirement for a household person to withdraw cash through ATMs for more than four times,” the SBI chairperson has been quoted as saying.

This is a particularly fantastic presumption that bears no understanding not only of the mass of rural India but also urban pockets where many depositors prefer to withdraw small amounts as and when they need it and often worry, quite correctly, that any larger sum in the pocket gets spent..

This is also the reason why micro recharges on mobiles are quite popular – a whole range of people who are critical to the economy fill in their accounts bit by bit rather than at one go. This should be plain to anyone who walks around the market and is willing to see how ordinary Indians live. Charging penalties to these customers, and all those who keep small sums in their deposit accounts, signals a banking sector that is disconnected from the real India.

Post-liberalisation, the share of voice of banks in the media has increased and can be seen at work every time there is an almost concerted demand for lowering of interest rates, supported often by industry. Simultaneously, the voice of depositors has weakened. This tilting of the balance signals a deeper malaise which if not checked in time will lead to the trampling of the rights of individuals who cannot stand up to the might of the banking system.

It is here that the regulator and the government must step up and push the banks and ask questions on customer service that still remain unanswered after repeated committees – the R K Talwar Committee of 1975, the M N Goiporia Committee of 1990, the S S Tarapore Committee of 2004 and the M Damodaran Committee of 2011 have all highlighted the lacunae and given us enough recommendations. A good way to expand the banking sector and make it healthy is to first act on these recommendations and set up stiff penalties for banks that breach the rules and turn a blind eye to customer complaints. All other penalties can wait.

 (Jagdish Rattanani is editor, SPJIMR. R K Pattnaik is Professor, SPJIMR)