Bank penalties cost depositors ₹5,000cr in ’17-18
Mayur.Shetty@timesgroup.com
Mumbai:05.08.2018
Banks collected penalties of close to ₹5,000 crore in 2017-18 from depositors for not maintaining minimum balance in their accounts. The quantum of penalties has gone up despite banks opening 30.8 crore basic savings accounts for those who cannot afford to maintain minimum balance under the Jan Dhan Yojana scheme.
The highest collection is by State Bank of India which raised ₹2,433 crore, nearly half of the total fines. Another 30% of the fines were raised by private lenders Axis Bank, HDFC Bank and ICICI Bank.
SBI is also the reason why penalties doubled in FY18. The bank reintroduced fines in FY18 after not collecting them for several years. However, since April this year, the minimum balance requirements were been eased and so have penalties. This followed a backlash after reports in January that SBI had collected ₹1,700cr in seven months.
As a percentage of penalties to savings accounts, HDFC Bank, Axis Bank and Oriental Bank of Commerce have higher averages than SBI. Although banks do not divulge number of savings accounts, the debit cards issued by them (excluding Jan Dhan cards) is an indication of the number of regular savings accounts.
The figures for fines were released in the Lok Sabha by junior finance minister Shiv Pratap Shukla on Friday in response to a query.
Depositors pay large fines if they miss min balance by a few rupees
According to Ashish K Das professor at the department of mathematics in IIT Mumbai, who has authored several reports on bank charges, a key flaw in the conditions imposed by banks is that the fines are not commensurate with the shortfall in deposits. So, depositors end up paying large penalties even when they miss the minimum balance requirement by a few rupees. This is not in keeping with the RBI directive which requires banks to ensure that charges are reasonable and not out of line with the average cost of providing banking services.
Even if SBI’s ₹2,434 crore were to be excluded, there is an increase of ₹400 crore in charges for violating the minimum balance rule since since 2015-16 — the year of demonetization. Although almost half the banks reduced their fines, the increase by other banks has more than made up the reductions. One reasons for this is that public sector banks are trying to increase fee collection to make up for losses due to bad debts. Public sector banks collectively lost ₹85,361 crore due to provisions for non-performing assets in 2017-18.
“In the process, banks are shifting the burden of corporate defaulters to the common man. This will ultimately discourage the common man who will be pushed out of the orbit of banking,” said Devidas Tuljapurkar, joint secretary, All India Bank Employees Association.’ Das in a report ‘Fault Lines in Implementation of Minimum Balance Rule’ highlighted how banks are saving close to ₹50,000 crore paying only 4% on savings account average balances of ₹25.1lakh crore durning 2015-16. They earn additional ₹28,000 crore not paying interest on current account balances of ₹4.3 lakh crore. The report shows how 92% of savings account money is steady in a bank and treated as a core deposit which can be used for long-term loans. Banks justify the higher spread that they earn on savings accounts on the grounds that they need it to cover the operational costs such as ATM networks, account maintenance and other facilities that are provided free of charge.
Mayur.Shetty@timesgroup.com
Mumbai:05.08.2018
Banks collected penalties of close to ₹5,000 crore in 2017-18 from depositors for not maintaining minimum balance in their accounts. The quantum of penalties has gone up despite banks opening 30.8 crore basic savings accounts for those who cannot afford to maintain minimum balance under the Jan Dhan Yojana scheme.
The highest collection is by State Bank of India which raised ₹2,433 crore, nearly half of the total fines. Another 30% of the fines were raised by private lenders Axis Bank, HDFC Bank and ICICI Bank.
SBI is also the reason why penalties doubled in FY18. The bank reintroduced fines in FY18 after not collecting them for several years. However, since April this year, the minimum balance requirements were been eased and so have penalties. This followed a backlash after reports in January that SBI had collected ₹1,700cr in seven months.
As a percentage of penalties to savings accounts, HDFC Bank, Axis Bank and Oriental Bank of Commerce have higher averages than SBI. Although banks do not divulge number of savings accounts, the debit cards issued by them (excluding Jan Dhan cards) is an indication of the number of regular savings accounts.
The figures for fines were released in the Lok Sabha by junior finance minister Shiv Pratap Shukla on Friday in response to a query.
Depositors pay large fines if they miss min balance by a few rupees
According to Ashish K Das professor at the department of mathematics in IIT Mumbai, who has authored several reports on bank charges, a key flaw in the conditions imposed by banks is that the fines are not commensurate with the shortfall in deposits. So, depositors end up paying large penalties even when they miss the minimum balance requirement by a few rupees. This is not in keeping with the RBI directive which requires banks to ensure that charges are reasonable and not out of line with the average cost of providing banking services.
Even if SBI’s ₹2,434 crore were to be excluded, there is an increase of ₹400 crore in charges for violating the minimum balance rule since since 2015-16 — the year of demonetization. Although almost half the banks reduced their fines, the increase by other banks has more than made up the reductions. One reasons for this is that public sector banks are trying to increase fee collection to make up for losses due to bad debts. Public sector banks collectively lost ₹85,361 crore due to provisions for non-performing assets in 2017-18.
“In the process, banks are shifting the burden of corporate defaulters to the common man. This will ultimately discourage the common man who will be pushed out of the orbit of banking,” said Devidas Tuljapurkar, joint secretary, All India Bank Employees Association.’ Das in a report ‘Fault Lines in Implementation of Minimum Balance Rule’ highlighted how banks are saving close to ₹50,000 crore paying only 4% on savings account average balances of ₹25.1lakh crore durning 2015-16. They earn additional ₹28,000 crore not paying interest on current account balances of ₹4.3 lakh crore. The report shows how 92% of savings account money is steady in a bank and treated as a core deposit which can be used for long-term loans. Banks justify the higher spread that they earn on savings accounts on the grounds that they need it to cover the operational costs such as ATM networks, account maintenance and other facilities that are provided free of charge.
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