(This appears in yesterday/today editions of Deccan Chronicle. Suddenly, we find the bankers hungry to eat in to our balances and what we took as freebies for ever now getting priced in. While I agree that there is a cost for everything, the prices should also be reasonable and transparent. A commercial bank should not be a tool for a government policy where one person pays for another one to enjoy. That is robbery)
THE COST OF EVERYTHING
In the good old days, banks took your money happily, gave us Savings Bank Interest at four or five percent per annum. However, this was based on the minimum balance between the tenth and the last date of the month. In other words, if you kept a lakh of rupees for 29 days and withdrew Rs.90,000 on the last date, you got interest on Rs.10,000 for the full month. And that interest would be credited every half year to the account. We used our bank accounts to issue a few cheques, draw cash and ask for some remittances. Remittances were never free. We paid D/D or T/T or Mail Transfer charges. It took a few days for money to be moved in. Even if your account was with a bank that was across the street from my bank, it took two to three days for us to effectively transfer money between each other.
In the process, the banker used a lot of our money for free or at a very low cost. As consumers, we could not demand anything more as the practices were the same across the banks. Of course, if you had lots of money, the branch manager would give you special favours. Like allotting a locker, giving you some demand drafts free and personally attending to you.
Today, the change is revolutionary. The opening up of the sector brought in private banks like HDFC, Kotak and a host of others eager to grow. They introduced the latest technologies and focused on giving us good service and conveniences. We now take it for granted that physical location does not matter, money is transferred instantaneously and banks can provide us with any service relating to transfer or moving money in an instant. In the beginning, the banks offered all of these services and more for free. They stole the consumers from the old age banks on the basis of more conveniences and speed. However, in the rat race between themselves they also offered everything for free. The revenue they gave up was like the ‘customer acquisition’ costs for them.
By now, most of us have got used to our new private bank accounts. And today, the bank account is linked to everything from paying of a range of bills, linking our stock market and mutual fund investments, remittances, pensions, salaries etc. So, if we must change bank accounts, there is a range of collateral actions that should be done. All of them involve some element of form-filling and spending time and effort. So, we have become ‘addicted’ to a particular bank account. Unless we are angry or upset, we are unlikely to change banks.
Now the private banks have their hooks in to us. So we are faced with a sudden imposition of ‘charges’ and ‘fees’ for everything. It is not that the private banks were not making any money. Given that they are all listed entities and most of them have given generous “Stock options” or “ESOP” to their key employees, there is tremendous pressure to keep profits growing. In the early days, banks like HDFC grew at a rapid pace and year on year growth was impressive. Soon they have reached a size, where the ‘rate’ of growth is getting smaller. Now they have to find newer ways to accelerate profits. Thus, we are seeing the introduction of ‘charges’ and fees for everything. For the bank, it is a simple exercise. For instance, a hundred rupee charge on a crore accounts implies an additional Rs.100 crore of revenue per annum on a recurring basis! So it is simple arithmetic at work. And the bank knows for sure that given the stickiness of the account number etc, it is unlikely that people will shift banks. And more important, I think all banks are now acting in unison. If everyone imposes a charge, do you and I have an option?
What is worrying is the manner in which the charges are being levied. Banks are simply sending messages (often hidden in some email) saying that your account will be charged some monthly or quarterly fee for some basic service. And they will put it in fine print that if you do not want it you can ‘opt out’. So, it is not a fee that we were aware of in advance or agreed to. It is simple arrogance. And the knowledge that as consumers, we have no options. Then, there are some other ‘relationship’ charges that banks impose in a similar manner. If you shout, they reverse the charge. But less than one percent of people shout, since most people do not notice small charges to their accounts.
The banks do not have a regulator that works to protect the consumer. RBI has not bothered to do anything about this. It is as if the RBI officials do not have any bank accounts themselves.
The banking “Ombudsman” to whom one can complain, is unlikely to do anything. He gets paid by the bank and will be loyal to them. Maybe it is time we woke up and took to the Consumer Courts.