By Moin Qazi
Dr Moin Qazi is a PhD in Economics and English.
Banks are now in the news for wrong reasons. Three years back they won plaudits for ushering in a financial inclusion revolution. The Guinness Book of World Records wrote: Most bank accounts opened in one week as part of the Financial Inclusion Campaign is 18,096,130 and was achieved by the Department of Financial Services, Government of India from August 23 to 29, 2014. We are now on a reverse trajectory and the new developments may well qualify for another entry for negative reasons.
SBIs anti-poor policies
The newspapers are screaming that Indias largest bank, the State Bank of India (SBI) has levied INR 1,771 crores between April and November 2017 as charges from customers who did not maintain their minimum monthly average balance (MAB) in their accounts. SBIs quarterly profit for the July-September quarter was INR 1,586 crores. Similarly, the fine was nearly half of the net profit between the period of April and September 2017, which was INR 3,586 crores. People were disillusioned because this action involved SBI, a bank which has for long been considered as a saviour by Indias common masses.
MAB policy: An irrationality
Banks charging a penalty for not maintaining a monthly average balance directly affects the poor in India, who are often unable to maintain the minimum balance because of their financial compulsions. These customers are being doubly burdened, as the people who are not in a position to maintain a minimum balance are being penalized by the banks through imposing a fine for it. On one hand, the government is compelling citizens to open bank accounts and discouraging cash transactions, and on the other hand, its policies often haphazard and detrimental to common peoples lives are forcing banks to levy such charges to cope with the costs of such policies. It is a classic case of the cart moving one step forward and two steps backwards.
Many cannot afford regular banks. Many have dropped out of the banking system after getting burnt by increasing hunger of banks for fees and penalties, much of which focuses on people who least can afford it. Private banks choose to extract more money from those at the lower end of their customer base, and many walk away rather than face a barrage of fees. Excessive documentation requirements and the perception that financial institutions are rich peoples clubs are among the most persistent obstacles. Many banks charge fees for a wide range of things, from low balances to frequent deposits or withdrawals. You might even get dinged if you want a paper statement, or want to use an ATM from another bank. The new stipulation of fees for even simple needs and keeping minimum balances in accounts is another deterrent for the low-income users in getting into the formal banking fold.
This clause for the penalty for not having minimum balance had been withdrawn by SBI in May 2012 with an aim of widening its customer base. At that time, many people shifted their accounts to SBI from the private banks as the private banks were levying a heavy charge for the minimum balance requirement. In April 2017, SBI reintroduced this penalty after RBI permitted banks to levy charges if customers failed to comply with the minimum balance limit. However, this move was criticised at that time from a wide spectrum of organisations as this was largely considered an anti-people decision which would affect the poor and working class of the country.
Contextualising operational losses
The operational losses for banks are marginal when we consider the losses incurred by the banks due to Non-Performing Assets (NPA). Moreover, Indian banks have been unable to keep a check on their rising NPAs. According to the Reserve Bank of India, NPAs of Indian banks stood at INR 7,11,312 crore at the end of March 2017, which jumped to INR 8,29,338 crores by June 2017 and then further to INR 8,36,782 crores by end of September 2017. Instead of going tough on the defaulting corporate borrowers, public sector banks had written-off over INR 55,000 crores of loans between April and September 2017. It would be unwise to extract a penalty from the financially weaker account holders for their inability to maintain a minimum balance, instead of recovering the loans given to the corporate customers. Banks, especially public sector banks, should find out other means to compensate for their operational losses if any.
The clock seems to have moved full circle. I remember in the early eighties, all of us bankers were part of a financial inclusion revolution that was far more vigorous than the one we see now. The wave of commercialisation put the brakes on this enthusiastic journey and a great mission was abandoned and orphaned. The high-profit goals spurred bankers to design rabbit holes in which the poor would get trapped and lose their accounts. Introduction of penalties for not maintaining minimum balances and for accounts remaining inoperative (absence of transaction in the account) led to a mass-scale demise of bank accounts of millions of poor account holders. Without informing the poor customers of policy changes, the bankers sheared and denuded the accounts of their bank balances by applying penalties, finally knocking them off the bank ledgers altogether.
Let us not forget the lessons of the past. The milestones which we have recorded in our financial inclusion journey should spur us forward with renewed vigour. Let us not reduce them to mere flag posts and consign our financial revolution to the backwoods of history. We should look forward to enjoying the fruits of this revolution.
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