In the late 20th century, the process of Bank nationalisation commenced in India with an objective of ensuring equal and affordable access to the formal financial institutions by all, irrespective of their financial status. Government and the Reserve Bank of India (RBI) started urging the people, especially the poor, to utilize the banking services instead of depending on the informal lenders which were infamous for trapping the poor in a debt cycle by levying high interest rates. Pro-poor banking schemes were meant to bring relief to the working class. Regrettably, things have changed lately. Banks have now started levying charges for almost all kinds of transactions thereby making banking a costly affair for the poor. Various studies have given the increasing losses resulting from higher Non-Performing Assets (NPAs) as the rationale behind the regressive step of the banks. It is significant to note that this is wholly supported by the RBI as well as the ruling government.
Factors That Triggered Higher Bank Charges:
1. The Problems of NPAs:
The Indian banking sector is going through a severe crisis. Losses arising out of NPAs have just multiplied over the years making it extremely difficult for the banks to carry on their daily operations. Banks continue to remain under-capitalized with their profits falling, thereby reducing their credit capacity. This is a major cause of the jobless growth which India is facing today.
As of March 2018, bad loans amounted to over Rs. 10.35 lakh crore and around 50% of these belong to the top 100 borrowers. In fact near 75% of all bad loans are over Rs. 100 crore, indicating clearly that bad loans primarily belong to the top 1%.
It is a known fact that high NPAs are a result of easy loans given to huge corporate bodies without properly verifying the need for such a loan and considering the risks associated with the projects for which the loans have been provided. UPA I and II have often been accused of providing easy loans to its corporate friends which have now turned into NPAs either due to mismanagement of funds (as is the case of Nirav Modi and Vijay Mallya) or due to the 2008 global financial crisis.
While the banks were trying to deal with the growing menace of NPAs, RBI increased the pressure by conducting an Asset Quality Review (AQR) in August, 2015 which revealed that a large number of loans given by the banks were non-performing (even upto 100%) and hidden. Consequently, the RBI made stringent rules for declaring bad loans. The RBI also placed 11 Public Sector Banks (PSBs) under prompt corrective action, restricting their ability to lend and accept deposits, or in effect function. Even the Insolvency and Bankruptcy Code (IBC) has not helped the banks to recover more than one-third of the lost amount.
Hence, the profits have fallen considerably forcing the banks to create other income sources in the name of bank charges.
While the banks were trying to deal with the losses and comply with the RBI guidelines, they were subjected to another blow in the form of demonetization in 2016.
A sudden delegitimization of 86% of Indian currency led to a flush of cash deposits in the banks. The employees worked overtime to ensure a smooth transition for the working class. However, the ruling government as well as the RBI failed to take cognisance of the immediate consequence on the banking sector. Apart from an increased operational cost, huge cash deposits increased the interest payments of the banks thereby worsening their already poor profitability.
3. Welfare Schemes:
Apart from the above two factors, another major reason for the reduced profits of the banks is its forceful involvement in the implementation of the welfare schemes launched by the ruling Bharatiya Janata Party (BJP).
Though the BJP has tried to ensure financial inclusion of all through welfare schemes such as the Pradhan Mantri Jan Dhan Yojana (PMJDY), it has proved to be a disaster for the depositors as well as the banks, especially the PSBs. Under the PMJDY, almost 32 crore accounts were opened but they remain non-operational till date. Furthermore, the Aadhar registration and the bank account linking process has led to a huge increase in the operational costs of the banks.
With so much of stress from the RBI as well as the government, the banks are being forced to lash out at the depositors.
RBI issued a guideline in July 2013, directing the banks to levy penal charges in case of non maintenance of minimum balance. Shockingly, a study conducted by Prof. Ashish Das of IIT Bombay revealed that banks were converting no-fee Jan Dhan saving accounts into fee-based regular saving accounts silently when an account holder carried out a 5th debit transaction in a month. This evidently impacts the poorest of poor who are unable to maintain even a minimum balance.
However, revenue from the penalties was insufficient for the banks to cover the huge losses. As a result, the banks have started levying charges on various other transactions since a year.
Depositors are even being charged for banking services which earlier had no charges like changes in address or mobile number, SMS alert service, update of KYC-related documents etc. They are now being charged for cash transactions in their home branches as well. Number of cash deposits and withdrawals, without charge, are limited to five or six times a month and an amount ranging from Rs 10 to Rs 150 per transaction is being charged by different banks. Added to this, there have also been limits imposed on the number of uncharged ATM transactions. The situation is worse for the migrant workers, that form a huge proportion of our labour class, who most often use non-home branches which increases their banking costs.
Even the number of onsite ATMs have reduced across banks, indicating sector wide cost cutting efforts aimed at reducing the depositors’ access to their funds.
An exhaustive list of the charges levied by certain major banks for various services can be viewed here. Apart from the already high charges, 18% GST is also levied worsening the conditions of the poor.
The assumption that the banks are taking such action in order to recover their losses is verified from the statement of State Bank of India (SBI) Managing Director in September 2017 who said that SBI was planning to raise Rs 2000 crore as a penalty for non-compliance of minimum balance in saving accounts, part of which would be used to compensate the extra costs incurred to banks due to linking of 40 crore savings accounts to Aadhaar.
As of March 2018, Rs. 11,500 crore has been collected by 21 PSBs and 3 private banks as penalties for non-maintenance of minimum balance. At the same time just the PSBs have written off Rs. 3.17 lakh crore of bad loans. Thus, the penalties would only compensate less than 4% of the losses. As a result, levying penalties is nothing but an unnecessary harassment for the poor and the working class who are paying for the mishaps of the corporates and the government alike.
The data relating to the penalties collected by few of the major PSBs and private banks for the non-maintenance of minimum balance in savings account can be viewed here.
The BJP government is not only shifting the burden of the banking crisis onto depositors but is also forcing depositors to subsidize its supposedly pro-people schemes. To squeeze and fleece depositors to compensate for the actions of the largest corporate houses in the country is regressive and unconscionable.
Financial Accountability Network (FAN) – India, that has started a ‘No Bank Charge’ campaign, has discussed this issue with various stakeholders including students, activists, economists among others. Dr Syeda Hameed, former member of the Planning Commission of India, says, “The policy on bank charges is extremely shameful as the burden of the NPA created by the rich and corporates has fallen on the poor, students, muslims, dalit women and men, and other marginalised sections.” Social activist Medha Patkar says, “Bank charges are a loot and they must be scrapped.”
Krishnakant of the Paryavaran Suraksha Samiti, Gujarat says, “Bank charges are bullying by the banks. There is no discussion on the decision of the bank charges. We don’t know who decides these charges. Nobody consults people.”
Anil Kumar Yadav, a Delhi-based delivery executive, says, “If banks can charge on minimum balance then why can’t they do so on maximum balance? I earn Rs. 9,000 a month which leaves me with insufficient balance at the end of the month.”
Like Anil, there are thousands of such working class and poor people for whom banking has become like an expense rather than a saving mechanism. They are being looted for no fault of theirs. This to some extent is forcing them to again move out of the formal financial institutions and depend on the informal sources. It is a vicious cycle that they have been trapped in.
The sheer regressiveness of these anti-poor measures is the result of the inability or unwillingness of the government as well as the RBI to fix the issues surrounding the banking sector. It is high time that the government increases its expediture and recapitalize the banks instead of shifting the burden on the poor sections of the society. Stringent, transperant and accountable lending measures should be formulated. Also, efforts should be taken to initiate proceedings against the defaulters.
Only if these measures are undertaken, can the credit flow improve which in turn will improve the banks’ profits and help in the overall economic growth. Otherwise, the cyclical process of bad loans-write offs-auctions-recapitalization will happen again which will worsen the already bad situation of the poor people.
It is time that the government and the RBI own up to their blunders and pull up their socks to revitalize the Indian banking sector. These charges, fees and penalties are not only unjust but also inadequate for compensating for the huge losses. These regressive measures can in no means be a substitute for the direly needed measures like sufficient recapitalization and reforms in lending and recovery practices. This passing the burden of corporate debts to working people must urgently be stopped.