The recent move by commercial banks to levy transaction charges on cash deposits and withdrawals beyond four times has triggered a groundswell of protests across the country. The move is part of the government’s recent thrust on expanding digital payments.
However, the measure, unless it is swiftly rolled back, will be a self-goal for the government. That this has come in the wake of a huge nationwide uproar triggered by demonetisaton, the public outrage at transaction charges is obvious.
Further, it has come at a time when the rate of interest on bank deposits has drastically fallen. According to the new rules, four cash withdrawals or deposits would be free per account in a branch. From the fifth transaction onwards, at least Rs150 would be charged on a customer.
The Centre launched no frills Jan Dhan accounts to make banking services accessible to every individual in the country. Under this scheme, the Centre announced to have opened at least 15 crore savings bank accounts.
In February, the government said that 20 million new zero-balance bank accounts had been created, ostensibly to get India’s underbanked citizens into the formal financial system.
However, less than a month later, major private sector banks — ICICI Bank, HDFC Bank and Axis Bank — have imposed costs on consumers for transactions in cash at bank branches. The transaction charges will hit Jan Dhan account holders, most of whom are from poor background, the hardest.
To make people pay for withdrawal of their own money is unfair. The argument that banks incur substantial cost on handling of cash does not wash. Deposits constitute a significant portion of banks’ earnings.
They earn sizable revenue by way of arbitrage by investing public deposits at higher interest. Inasmuch as the banks make handsome gain from these deposits, they should not grudge spending a little on cash handling.
Now, a customer has to pay service charge to a bank for cash deposits and withdrawals and service tax on the service charge to the government. People are being taxed for earning money; taxed for spending money; taxed for hoarding money; taxed for withdrawing money and taxed for depositing money.
It appears as if earning has become a crime, saving a crime and spending is also a crime in this country. Never have people in India faced such a situation, not even during Emergency.
Zero-balance and salary accounts have not been spared of the four-transactions-per-month rule by private banks. If the government and Reserve Bank of India (RBI) do not step in immediately to stop private banks from imposing these transaction costs, state-owned banks might also follow suit.
Earlier this month, SBI, through a notification on its website, had announced a new fee structure starting 1 April. After five years, the bank has revived the minimum balance required to maintain a savings account. It starts at Rs1000 for accounts in rural areas and goes up to Rs5000 in metros.
The penalty for not maintaining the balance ranges from Rs20-100 depending on the locale of the branch. Considering that SBI has a mind-boggling 32 crore bank accounts, the minimum balance compulsion will hit people hardest, especially in rural areas. The government has asked SBI to reconsider this decision.
A country of 1.33 billion people has less than 2.2 lakh ATM machines, mostly confined to metropolitan sites. Everybody else in the vast hinterland has to operate through branch banking. We have often said in this column about how India lacks in infrastructure and public consciousness to make digital payments impossible.
Furthermore, the transaction charges will prove to be a deterrent to those whose livelihood depends on cash, such as taxi drivers, small store owners and daily wage earners. The government would do well to ask private banks to roll back transaction charges, failing which the hope of extending formal banking to most of India will be a proved a farce.
Instead of forcing people to switch to digital, the government should try to create conditions to make digital transactions so easy and costless as to make use of cash look foolish.