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.

2. Demonetization

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.
The Impact:

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.

Way Forward?:
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.

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3. The 99 Per Cent Failure!

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Despite the availability of mobile-banking services and the narrowing of gender, wealth and education gaps in account ownership, few account holders are using facilities available to them, raising doubts around improvements for financial inclusion, according to the latest Global Findex Survey released by the World Bank in April 2018.
 
India’s unbanked population has been the target of the government’s flagship Pradhan Mantri Jan Dhan Yojana (PMJDY), or the Prime Minister’s People’s Wealth Programme, launched in 2014. It has been largely responsible for the rapid increase in opened accounts, the Global Findex report said.
 
No more than 1% of PMJDY account holders–3.1 million beneficiaries–use overdraft facilities available to them, and 17% of PMJDY accounts are “zero-balance”, meaning they are not used, recent data show, although that is down from 25% in 2016 and 75% in 2014.

 
There is no marked improvement in access to formal credit, and 38% of Indian accounts are inactive–meaning, there were no withdrawals or deposits over the course of a year–suggesting that many Indians are still not integrated into the formal banking system.
 
Participation in and effective use of financial services can help drive development goals by aiding investment in education and health, helping to manage financial emergencies and reduce dependency on cash, the report said.
 
India not yet benefitting from mobile banking
 
The proportion of the Indian population accessing financial institution accounts from their phones or the Internet, making digital payments or using mobile money wallets is significantly lower than in other developing economies.
 
In 2017, 5% of Indians accessed a financial institution account from their phone or the Internet, and 2% of the population owned a mobile money account, the Global Findex data show.
 
Compare this to sub-Saharan Africa, where 21% of adults had a mobile money account in 2017, the highest anywhere in the world and a 50% increase since 2014. Digital payments are also more widespread, with 97% of adults in Kenya making a digital payment in 2017 and 60% in South Africa, compared to 29% in India.

 
Adults in these countries are moving towards financial inclusion, bypassing traditional entry points and capitalising on the growth of digital finance. The same cannot be said about India.
 
Despite addressing problems around access to physical bank branches and the need to present specific documentation, often cited as barriers to financial inclusion, the majority of Indians are not yet experiencing the benefits of mobile banking.

“Generally people are still not entirely comfortable with using their phones for banking,” said Nishanth K., senior research associate at Dvara Research, a financial systems policy research institution. “There is a fundamental mis-trust in using phones or digital modes to transact, particularly in rural areas.”

Digital India, a government initiative launched in 2015 to improve internet connectivity, digital literacy and the nation’s technology infrastructure, aims to increase participation in the digital economy. Through mobile banking platforms, cashless government benefit transfers and also increased awareness of these services, it believes financial inclusion can be improved.
 
However, poor access to electricity and internet penetration hinders connectivity in India, and may be a contributing factor to slow adoption of mobile banking.
 
Internet penetration currently faces a rural-urban divide. In December 2017, 65% of urban households had an internet connection compared to 20% in rural india, according to a 2017 report released by the Internet and Mobile Association of India.
 
The Bharat Net Programme, a government scheme committed to spending $5.07 billion (Rs 34,000 crore) to provide high-speed internet in 150,000 villages by 2019, must double its efforts in the next year in order to reach its target. Currently 67,271 villages have been connected, Your Story reported in March 2018.
 
Equally, while mobile phone ownership is increasing, many rural inhabitants still struggle to access electricity for simple daily tasks–such as charging a phone.
 
As many as 31 million households currently do not have electricity, despite the 99.8% village electrification claims made by the Rural Electrification Corporation Ltd (REC)–the agency appointed to execute the Deen Dayal Upadhyaya Grameen Jyoti Yojana or ‘Power For All’ programme.
 
Using apps and online banking websites requires a level of technical literacy and confidence that Indians in rural and low-income areas often do not possess.
 
An education gap persists regarding mobile account access and digital payments. For example, 2% of those with a primary education or less have used a mobile phone or the internet to access an account in 2017, compared to 9% of those with a secondary education or less, the Global Findex data show.
 
Nishanth K. believes India cannot rely on technology alone to help reduce the numbers excluded from formal banking services.
 
“Access isn’t necessarily synonymous with the use of financial services,” he said. “While Global Findex data suggest access to financial services might be high, consumers may decide not to use them–either voluntarily or because opportunity costs are too high. While there is clearly a need for insurance and pensions, we are still yet to see viable products for low-income rural households.”

 
Financial literacy and the gender gap
 
Female bank-account ownership increased by 79% between 2014 and 2017. The gender gap, the difference between male and female account ownership, also narrowed to 6 percentage points, down from a 20-percentage-point gap three years ago.
 
These figures, along with a narrowing of wealth and education gaps by 10 percentage points each, suggest traditional socio-economic and gender barriers are no longer factors which impact upon successful access to financial services.
 

However while female account ownership has increased significantly to include 77% of all women in India, female participation in financial services and financial literacy has not yet reached similar levels.
 
No more than 22% of women owned a debit card in 2017, compared to 43% of men, according to Global Findex data. Similarly, 35% of men said they had made or received a digital payment in 2017 compared to 22% of women.
 
Low levels of engagement with the formal banking sector beyond simple withdrawals and deposits by women and marginalised sections of society suggest that universal account ownership does not necessarily equate to financial inclusion or the ability to use banking services effectively.
 
In 2015-16, 53% of women used a bank account in their own name, according to the fourth National Family Health Survey data.
 
Financial literacy is defined by the OECD, an intergovernmental economic organisation, as “a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions”.
 
For rural women in particular, barriers to financial literacy such as a lack of higher education and male-dominated social structures still remain.
 
Knowledge of core banking services, online banking and banks’ credit facilities had the lowest levels of understanding, according to this 2017 study of rural women in Tamil Nadu. The women surveyed understood better the different bank account types available and the interest they offer; most were likely to invest in gold than any other saving or investment product due to a lack of understanding of these commercial services.  
 
“One interesting solution to improve female participation is to have more women as banking agents working in rural areas,” said Nishanth K.
 
“Currently, 8% of banking agents are women and three quarters work in rural areas; this perhaps indicates that they are better able to reduce the gender imbalance around participation in financial services,” said Nishanth K., quoting this May 2018 study by MicroSave, a financial inclusion consulting firm.
 
Access to and the ability to use financial services can empower women through managing financial risk and increase savings for education and healthcare spend.
 
However, account ownership alone does not equal financial inclusion, and the lives of previously ‘unbanked’ women have not necessarily improved as a result of owning an account.
 
While data show account ownership increased by 79% since 2014, female empowerment indicators, such as domestic abuse levels or access to reproductive health, have not improved at the same time.
 
Several indicators have shown a decline, suggesting levels of women’s empowerment have not improved. Only 53.5% women in the reproductive age-group used modern methods of contraception in 2015-16, a decline from 56.3% in 2005-06, according to data from the National Family Health Survey, 2015-16, IndiaSpend reported in January 2018. In 2015-16, 28.8% of married women faced spousal violence; in rural areas the figure is 31.1%.
 
(Sanghera, a graduate of King’s College London, is an intern with IndiaSpend.)
 
Courtesy: India Spend

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