How Indian banks are fleecing you silently, gradually…

You will be surprised to know that a normal savings bank account bills a plethora of charges to your bank account.

Sep 16, 2019 10:09 IST India Infoline News Service

Recently, an article in The Economist reported that nearly $16 trillion of global debt was negative interest debt. Japan and most of the north European countries actually pay negative interest rates on bonds. This effectively means you are paying the issuer money to buy their bonds. Sounds weird, but that is the way it is!
 
If you are an Indian and rejoicing the high rates of interest that you earn, then just think again. You will be surprised to know that a normal savings bank account bills a plethora of charges to your bank account. These could include charges for not maintaining average minimum balance, cash withdrawal charges, cheque issue charges, fund transfer charges, debit card charges, duplicate statement charges; and the list can just go on. If you add up all these innocuous charges that are billed to your bank account, you may actually end up paying the bank for your deposits rather than earning money. Here is how!
 
Have banks managed to rip you off by Rs93,000 crore?
This point would never have come to light had a query not been raised under the Right To Information (RTI) Act. In a detailed note on the extent to which banks were fleecing customers, Money Life magazine did some rough calculations of how much most of us end up paying in the form of charges towards our savings bank accounts.
Particulars Amount
Total charges levied by all banks in previous fiscal year (as disclosed in response to an RTI query) - A Rs50,000 crore
Total Number of bank accounts in India 97 crore accounts
Out of which (basic service bank accounts) 53 crore accounts
Regular bank accounts 44 crore accounts
Loss to customers due to partial repo rate cut not passed on to customers (as estimated by ex-bankers) - B Rs43,000 crore
Total effective cost paid by regular account holders (A+B) Rs93,000 crore
Average cost paid by 44 crore account holders Rs2,113 per year
Average Deposit required to earn this money as interest at savings bank rate of 4% Rs.52,825
 
What is the significance of this last column. To begin with, we have applied the average cost and your actual cost may be more or less on your bank account. The moral of the story is that your balance up to Rs53,000 in your savings account does not earn you anything. It is only when your balance goes above this amount that your bank will start paying you. Millions of hardcore Indian depositors who think that banks are still paying them for their deposits need to think again.
 
But, what exactly are these charges that banks bill to you?
Most account holders don’t bother about the fine print of their bank accounts. They are happy with being able to transact and issue cheques from the account. As per RBI regulations, every bank is required to put up a complete schedule of all these charges on their website. In fact, if you go to the websites of any of these banks and click on the service charges link, you will find the list of charges and the costs running into several pages. Let us capture some of these charges for two of the largest banks; one in the public sector and one in the private sector. (We refer to a normal savings account in an urban area).
State Bank of India Service Charges HDFC Bank Service charges
Minimum Average Balance (MAB) Minimum Rs5,000 Minimum Average Balance (MAB) Minimum Rs10,000
Penalty for not meeting MAB Rs50 to Rs100 (plus GST) Penalty for not meeting MAB Rs150 to Rs600 (plus GST)
Cheque Book 25 cheque leaves free per FY. Extra cheque leaf at Rs3/leaf Cheque Book 25 cheque leaves free per FY. Extra cheque leaf  at Rs3/leaf
Stop payment instruction Rs100 per instrument plus GST Stop payment instruction Rs100 per instrument plus GST
Duplicate statement of account Rs100 plus GST Duplicate statement of account Rs100 plus GST. Rs50-75 for phone banking
SB account closure charges Rs500 plus GST SB account closure charges Rs500 plus GST up to 1 year
Standing instruction inter-bank Rs50 plus GST Standing instruction inter-bank Rs50 plus GST per case plus remittance
Duplicate interest / Balance certificate Rs150 plus GST Duplicate interest / Balance certificate Rs50 plus GST
Bank Photo attestation Rs150 plus GST Bank Photo attestation Rs100 plus GST
Enquiries related to old records Rs200 plus GST Enquiries related to old records Rs100 plus GST
Cheque deposited returned unpaid Rs150 to Rs250 plus GST Cheque deposited returned unpaid Rs200 plus GST
Cheque issued returned unpaid Rs500 per instance plus GST Cheque issued returned unpaid Rs500 per instance plus GST
More than 3 cash deposits in a month Rs50 per transaction plus GST More than 4 cash deposits in a month Rs150 per transaction plus GST
Issue  of Gold and Platinum debit card Rs100 to Rs300 plus GST Issue of all debit cards by the bank Rs150 to Rs750 plus GST
Annual Fee for all debit cards Rs125 to Rs350 plus GST Annual Fee for all debit cards Rs150 to Rs750 plus GST
ATM withdrawal charges beyond 3 transactions Rs20 plus GST for withdrawals and Rs8 for non-cash ATM withdrawal charges beyond 5 transactions Rs20 plus GST for withdrawals and Rs8.50 for non-cash
Data Source: www.sbi.co.in and www.hdfcbank.com
 
The above table only captures the gist of the major charges that are billed to your bank account. The actual list can go on much longer, but that is not the point. The moral of the story is that most of these are charges you may not be aware of nor realize. But when these charges are aggregated they amount to a whopping Rs50,000cr for the banks. That is, not counting the repo rate cuts not passed on to the customer.
 
What should bank depositors do?
To be fair, banks are perfectly within the rule book in imposing these charges. RBI only insists that the decision on charges be approved by the respective bank board so as to be commensurate with the value of service provided. In short, these charges will continue to be at the discretion of the banks. Here are a few things to ensure.
  • Make it a point to maintain your MAB as per the account requirement. Remember these charges are calculated on a daily basis.
  • To the extent possible avoid depositing and withdrawing cash and prefer the digital mode to the extent possible. Internet banking can do away with half these charges.
  • Internet banking is not just for transactions but most of your statement downloads and enquiries can also be done on the net. Why pay for these services unnecessarily?
  • Ensure to keep your bank account sufficiently funded. Be it issue of cheques, ECS or automatic debit of bank charges; any dishonour can be expensive.
 
A parting thought. The total loss to the depositors of Rs93,000cr last year is a huge profit for banks. Ironically, the same banks have not shown the same enthusiasm when pushing for timely repayment of loans. That would have made this loss more palatable!

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