RBI licensing policy favours the private sector under the Modi regime

It is surprising that network of Public Sector Banks has not been augmented despite the fact that financial inclusion is possible only through PSBs

RBI (Photo Courtesy: PTI)
RBI (Photo Courtesy: PTI)

N Shankar

The Reserve Bank of India being a regulator has been given the authority to grant banking licences. It had framed its licensing policy to grant licenses for establishing new banks with due process of diligence, fit and proper criteria and with no conflict of interest, etc. The licensing policy has-been under debate in various fora but surely, it has not helped take banking to all people across the country to all sections of society. Large sections of people are still outside the banking services and also institutional credit delivery.

RBI too changed its licensing policy as a progressive regulator in the name of changing situations but never made stringent measures to safeguard the savings of people being kept in banks. It gave licences to Local Area Bank and Mahila Bank. Both these banks are not in existence now.

Then it decided to give licences to Universal Banks, Payment Banks and Small Finance Banks by saying all those will meet the banking requirements of people and the nation. In all, licences for two Universal Banks, 11 Payment Banks and 10 Small Finance Banks were granted in the last one decade by RBI, with relaxation in the capital requirement and deciding certain scope of activities.

All these licences were granted to promoters from private sector or to MFI and NBFCs promoted by leading corporates. Whether these banks while dealing with public money and their transactions have been able to extend satisfactory and dedicated services to the people as expected of and by registering results with added values to the stake holders is still a question.

What is surprising is that the RBI never felt the need for increasing the PSBs and their presence by giving licences for new banks as well as for new branches to existing PSBs despite the fact that the financial inclusion is possible only through PSBs. Clearly, RBI’s licensing policy has been heavily in favour of the private sector and even in that perspective it has not been consistent, strict and forceful in ensuring safety of public savings.

Now RBI has decided to grant in-principle approval to Centrum Financial Services Ltd to set up a small finance bank under general guidelines for ‘on tap’ licensing of small finance banks in the private sector. RBI has permitted such a licence to enable takeover of failed PMC Bank that is under the control of administrator.

So the grant of new licence is to promote a bank to take over a failed bank and thus this is a new beginning to a new licensing policy of RBI. Such licensing is nothing but diverting the attention of people from failure of RBI to arrest bank failures. Do we want such stopgap arrangements in the form of licensing policy to tide over the issues of failing banks?

The question is if RBI’s licensing policy is good in terms of screening of promoter, fit and proper criterion, etc, because if so, banks opened under such policy should not have failed. If licensing policy is good and even then banks are failing, then its monitoring policies as a regulator are lacking. That is why common people want RBI to frame strict, stringent and effective licensing policy and also frame effective monitoring mechanism so that hard-earned savings of common people can be secured.

Service charges levied by banks

The SBI, while celebrating its 66th Bank Day decided that its basic saving bank deposit (BSBD) account holders won’t be allowed to withdraw cash more than four times in a month and will offer only first 10 cheque leaves free in a financial year. There after, the customer will be charged Rs 40+GST for 10 leaves cheque book, Rs 75+GST for 25 leaves cheque book and 50+GST for emergency chequebook of 10 leaves or part thereof.

The decision has inbuilt contradictions and reflect the deliberate intent to restrict the customers from availing fair and free services. If four cash withdrawals are allowed free every month, then a minimum of 48 cheque leaves should have been allowed free in a year and hence allowing only 10 free cheque leaves per year is questionable. SBI may argue that cash withdrawals mean the number of withdrawals through ATMs and not the counter transactions. Then, it means that no cash withdrawal will be allowed on counter.

Further, the free cheque up to 10 leaves per year is nothing but not even one transaction per month and that makes it a mockery. Remember that SBI is known for collecting Rs 300 crore by levying charges from SB accountholders for not maintaining minimum balance.

Looking at SBI, many other banks will also follow and whether RBI finds such service charges to be realistic and fair has to be seen. Such charges will only push the ordinary poor customers to go out of the banking network and will encourage transactions outside the banks in cash, defeating the avowed govt agenda on digitisation.

Bank’s service charges on extending services to customers have been under discussion in various fora. There is a strong feeling that banks’ service charges are very high and there is also a demand from the bank customers’ bodies to reduce the same. Over a period of time, AIBEA has been raising the issues connected to the interest of customers and has been demanding resolution to the same. The service charges are treated as one of the components of non-interest income for the bank.

Banks have been introducing new service charges and increasing the already existing charges at regular interval to offset the reduction in interest earnings due to rising NPAs and easing of monetary policy. This has resulted in subsidising the borrowers at the cost of small saving deposit holders.

Banks charging the deposit holders for the service of providing ATM cards, debit cards, cash withdrawals and also for cash deposits, besides charging incidental charges, minimum balance charges, folio charges and even account closure charges is reflective of how the ordinary deposit account holders are heavily charged despite getting the lowest rate of interest on their deposits.

What is more surprising is that when government of India wants financial inclusion and banking services to reach more and more people, who have been deprived of the banking. If so, bank charges for its services have to be addressed properly.

Further, the policy by banks limiting the services by prescribing a ceiling on the number of transactions also needs to be reviewed.

PSBs are nation builders and economy churners and are bestowed with the responsibility of financial inclusion and hence have to be reasonable in their charges. Ultimately, bank charges should not result in depriving banking services to common man.

(IPA Service)

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